Overseas portfolio investors shift money to banks, infrastructure and oil companies

MUMBAI: Overseas portfolio investors are changing their India strategy. While cutting stakes in more than a fourth of the companies they are invested in, fund managers have shifted bets from technology and commodity-linked sectors to banks, infrastructure and oil companies amid expectations the Reserve Bank of India (RBI) will cut rates further, having already done so on January 15.

Foreign institutional investors’ holdings in the quarter ended December 31, 2014, have fallen from the preceding quarter in 120 of the 460 companies in which they have stakes. About 60 companies have witnessed an increase, according to an ET study of shareholding patterns in 1,200 companies.

Though FIIs cut stakes in more companies than they invested, analysts said data show they preferred to keep the money in India, a reflection of their confidence in the economic revival.

In the quarter, they reduced stakes in large-caps, including Reliance Industries, Tata Steel, Infosys, Tata Power, Cairn India, Adani Enterprises, Tech Mahindra, IndusInd Bank, Suzlon Energy and Biocon. Hero Moto-Corp, BPCL, HPCL, Axis Bank, SBI, ICICI Bank, and Kotak Mahindra Bank are among the 60 stocks in which they increased stake. “Now, India is tilting towards the domestic story from the exports story. Many exportrelated stocks are stagnant, while banks and financial companies will ride the next… wave.

FIIs, too, would go with the wind,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services. “There is a change in FIIs’ India investment pattern from IT and commodities stocks to interest rate-sensitive stocks, which are early beneficiaries of a lower rate regime,” said Samir Arora, fund manager, Helios Capital.

FIIs invested about Rs 900 crore in October 2014, and Rs 14,300 crore in November 2014, but turned net sellers in December 2014 to the tune of Rs 965 crore. Fund managers said technology and commodity-linked companies have fallen out of FII favour because of stagnant growth and an uncertain outlook.

FIIs are moving away from companies that are growing in single digit but trading at rich valuations.

“Foreign investors are now focused on inexpensive banks, financial institutions and some of the infra stocks that are going to benefit in the long term from the government’s new initiatives and the interest rate reversal cycle,” said UR Bhat, managing director, Dalton Capital.

FIIs’ favourite in the quarter was Hero MotoCorp, in which they increased their stake to 39.34% from 34.34%. They raised their holdings in HPCL and BPCL by 4.82% and 2.63%, respectively, to record levels following the sharp fall in crude oil prices globally and domestic diesel price deregulation.

“This makes clear that foreign investors have changed their strategy for Indian markets.

They sold holdings in underperformers and fundamentally weak companies, including a few big companies, but instead of taking money out of India, they invested in banks, NBFCs (non-banking finance companies) and select midcaps,” said Arun Kejriwal, founder and CEO, Kris Research.

For the second consecutive quarter, FIIs cut their stake in Reliance Industries — to 18.90% from 19.46% on September 30, 2014. In mid-caps, FII holding in KPIT Technologies fell from 24.79% to 14.42%. Some of the other stocks in which FII holding fell include Amtek Auto, Tilaknagar Industires, Hindustan Oil Exploration, Aban Offshore, Lanco Infratech and GVK Power, among others.