FIIs shifting back to defensives post Q1 results

MUMBAI: The Indian benchmark indices are finding it difficult to stabilise near the higher end of the trading range.

Even as the hot money has been chasing cyclicals on hopes of economic reforms, there has been a shift in FIIs preference post Q1 results.

These sectors have performed well in July and in the first few days of August. It appears that though FIIs have significant exposure to cyclicals, but of late, there has been some movement into defensives. Some of the FIIs that are well-entrenched in India have decided to move slightly away from cyclicals.

"What has taken everyone by surprise the change in the sectoral rotation. A lot of the exporters, primarily pharma, technology have been big performers over the last two months and many of the domestic cyclicals have seen good moderation," said Rajat Rajgarhia, MD-Institutional Equities, Motilal Oswal Securities.

Most of the Nifty companies that have beaten earnings estimate in the June quarter results come from defensives such as IT and pharmaceuticals.

According to Ravi Muthukrishnan, Co-Head Research, ICICI Securities, at the end of June quarter, 70 per cent of the FII flows went into cyclicals and 30 per cent in defensives. But post Q1 results, the pharma index, the IT index, the auto index and the FMCG index have all gone up.

“These sectors have started doing well in July and in the first few days of August. What I get from this analysis then is that FIIs still have a significant exposure to cyclicals, but of late, there has been some movement into defensives. It appears to me that some of the FIIs that are well-entrenched in India have decided to move slightly away from cyclicals,” Muthukrishnan told ET Now.