High foreign holding could mean more pain for some stocks if selling intensifies

Mumbai: Stocks with significant overseas ownership could be headed for an extended bear run if there is an encore to the selling seen last week, with foreign funds dumping Indian equities worth $1.5 billion to send local indices into a pronounced decline.

Among the 80 of the BSE500 stocks where foreign portfolio investors (FPIs) held more than 25 per cent stake, 45 have already declined between 5 per cent and 20 per cent last week. Those stocks shedding more than 15 per cent include Prestige Estates, Gayatri Projects, Piramal Enterprises, Sobha Developers and REC.

Fund managers said that passive money is flying away from emerging markets, likely affecting FPI-heavy stocks in case the outflow intensifies.


“We are part of an emerging market (EM) basket and, of course, we are impacted as foreign investors are pulling out money from the EMs,” said Prateek Agarwal, CIO of ASK Investment Managers.

The Sensex, BSE Midcap and BSE Smallcap indices have declined 7 per cent last week over concerns that the Covid-19 outbreak may trigger a recession across major economies.

There are as many as 18 stocks on BSE500 index where FPIs hold 40-73 per cent stake. They include HDFC, Zee Entertainment, Shriram Transport Finance, IndusInd Bank, Just Dial, Apollo Hospitals, Axis Bank, Indiabulls Housing, ICICI Bank, Cyient and Manappuram Finance.

“Global emerging market ETFs have certain allocations to India and those investors when they are in risk-off mode put redemptions and the fund managers do not have a choice but to sell,” said Nilesh Shah, MD, Kotak Mutual Fund.

FPI-heavy stocks that have seen earnings downgrades recently were oversold last week. Stocks such as Intellect Design, Arvind Fashions, Tata Steel, HPCL, Magma Fincorp, DLF, Future Lifestyle and Lemon Tree declined between 10 per cent and 20 per cent. Disappointing earnings growth, stretched valuations and slowdown in economic growth also hastened the pace of declines, said foreign investors.

“The markets by any standards, even in India, are very expensive. In general, the so-called blue chips or growth stocks are very expensive based on price-toearnings ratio and on a price-tosales ratio,” said Marc Faber, the author of the Gloom, Boom & Doom report.

Earnings estimates of more than half the top 300 Indian companies have been downgraded by analysts in the past one month.