That the foreign institutional investors (FIIs) and domestic investors (insurance and mutual funds) often follow divergent strategies when it comes to stock picking is well known. When FIIs sell, domestic funds step in, at times to support the market. Even the sectoral preferences of these two classes tend to vary at times. The quarterly ownership pattern, therefore, throws up trends that give a sense of what’s happening in the market.
Equity strategists and analysts are looking at the June quarter ownership patterns to formulate the current quarter’s strategy as little can explain the FII inflows that the recent months have seen, given that there is no material improvement in the Indian economy. In the June quarter, FIIs remained net sellers of equities to the tune of Rs 2,000 crore. Domestic institutions, in contrast, were net buyers in the June quarter. Though the overall level of ownership did not see any major change, the choice of sectors and companies indicates that the economy is not near turning a leaf.
In the quarter, foreign funds have remained largely defensive, a clear indication that the economy remains sluggish. FIIs have stayed positive on consumer, pharmaceuticals, cement and utilities between April and June. And, though they remain overweight on financials, they have sold bank stocks along with industrials and energy stocks. Though the overweight on financials continues, it has come under some pressure due to heavy selling, and the inclusion of Bank of Baroda in the MSCI index. Bank of America Merrill Lynch says the overweight position of the sector is now at the lowest level. “Post MSCI rebalance, now only two financial companies figure on the top of the top-10 over-owned list (ICICI and HDFC).” Energy is now the largest underweight sector for FIIs. According to analysis done by Kotak Institutional Equities, FIIs bought TCS, HDFC and HDFC Bank while they sold Axis Bank, Infosys and Reliance Industries.
Mutual funds, on the other hand, bought industrials and banking. Insurance players bought utilities, energy and technology. In terms of specific stocks, mutual funds bought Larsen & Toubro, ICICI Bank and Infosys, while they sold TCS, Cairn India and Reliance Industries. Insurance companies have a seemingly contrarian view and as a result have bought NTPC, Infosys and Reliance Industries, stocks that the FIIs and DIIs have sold.
