Foreign portfolio investors chase blue chips, miss the midcap rally
Mumbai: The liquidity-driven rally in the Indian stock markets, that buoyed mid-cap stocks, has caught foreign investors short.Their preference for large-cap blue chip stocks meant that midcaps occupied very little space in their portfolios, resulting in them missing the better part of the rally .
Foreign portfolio investors have pumped in more than $8 billion (Rs 42,000 crore) into domestic equity markets in the last one year, but their investment preferences have remained orthodox in nature. Top 10 stocks such as HDFC Bank, HDFC, Infosys, ICICI, RIL, TCS, ITC, Tata Motors, Axis Bank and Kotak Mahindra Bank account for 42% of their equity portfolios in India, whereas other 10 stocks have 15% of their investment.
The NSE Nifty gained just 2.3% in the past two years while the NSE Midcap index surged nearly 25% during the same period.
FPIs seem to have missed out the midcap rally. For instance, FPIs hold only 13% stake in Escorts, which surged more than 250% in the last one year. Similarly, FIIs own very little in the best performers in the midcap space over the last two years such as Vedanta, Indian Bank, Dalmia Bharat and Sundram Fasteners.
FPIs continue to remain upbeat on automobiles, banking and IT services and 58% of their Indian equity investment is in these three sectors. In the last one year, FPIs have reduced their investment in pharmaceuticals, consumers, telecom and real estate sectors.
“FPIs always preferred sector lead ers in terms of market cap or growth or corporate governance in the emerging markets as these stocks have given consistent returns in the past decade or two,“ said UR Bhat, managing director, Dalton Capital Advisors. “On the other side, due to higher liquidity and lower risk, the impact cost for the large-ticket size stocks are much lower compared to other shares.“
In the December 2016 quarter, FPIs sold equities worth Rs 30,700 crore, the highest ever in a quarter. FPI ownership (including ADR and GDR) in the BSE-200 Index came down to 24.2% in December 2016 quarter, compared with 25% in the quarter before.
Foreign portfolio investors have pumped in more than $8 billion (Rs 42,000 crore) into domestic equity markets in the last one year, but their investment preferences have remained orthodox in nature. Top 10 stocks such as HDFC Bank, HDFC, Infosys, ICICI, RIL, TCS, ITC, Tata Motors, Axis Bank and Kotak Mahindra Bank account for 42% of their equity portfolios in India, whereas other 10 stocks have 15% of their investment.
The NSE Nifty gained just 2.3% in the past two years while the NSE Midcap index surged nearly 25% during the same period.
FPIs seem to have missed out the midcap rally. For instance, FPIs hold only 13% stake in Escorts, which surged more than 250% in the last one year. Similarly, FIIs own very little in the best performers in the midcap space over the last two years such as Vedanta, Indian Bank, Dalmia Bharat and Sundram Fasteners.
FPIs continue to remain upbeat on automobiles, banking and IT services and 58% of their Indian equity investment is in these three sectors. In the last one year, FPIs have reduced their investment in pharmaceuticals, consumers, telecom and real estate sectors.
“FPIs always preferred sector lead ers in terms of market cap or growth or corporate governance in the emerging markets as these stocks have given consistent returns in the past decade or two,“ said UR Bhat, managing director, Dalton Capital Advisors. “On the other side, due to higher liquidity and lower risk, the impact cost for the large-ticket size stocks are much lower compared to other shares.“
In the December 2016 quarter, FPIs sold equities worth Rs 30,700 crore, the highest ever in a quarter. FPI ownership (including ADR and GDR) in the BSE-200 Index came down to 24.2% in December 2016 quarter, compared with 25% in the quarter before.
