FPIs top BSE 500 companies in dividend income growth

Investment in quality stocks which offer relative earnings security as well as better corporate governance gives foreign portfolio investors (FPI) confi dence in Indian equities. Such stocks provide not only the comfort of limited downside risk in a volatile market but also a superior dividend growth.

According to the data compiled by ETIG, FPIs’ income from dividends on an average has outpaced the total dividend growth of the BSE-500 companies by as much as 4.7% in the last 10 years. The dividend income for FPIs between FY06 and FY15 grew 16% annually, while the total dividend of the sample rose by 13% during the same period.

One would argue that FPI holding being at record high levels is the key factor for this, but the data suggests that the outperformance is mainly attributed to stock selection. The share of top 10 dividend companies accounted for about half of the total dividends in FY15 as compared with one-third in FY06, validating the argument of stock selection substantially. The share of FPIs in total dividends of the BSE-500 was 17.6% in FY15, while their equity holding was13.8%.

The dividend income reduces the cost of acquisition for an investor. Consider this: an investor buys a share of a company at Rs 100 in a particular year and the company declares a dividend of Rs 5 per share during the same year, this means that the effective cost of a share bought by an investor will reduce by 5%. Based on the 10 year average, dividend income for the FPI is equivalent to 17% of the total equity investments done by the FPIs every year.

The largest contributors for FPIs’ dividend kitty are Infosys and TCS. FPIs received a dividend income of Rs 2,592 crore and Rs 2,311 crore, respectively, from these two IT fi rms in FY15.

The income earned through dividends is also tax-free in the hands of an FPI.