Foreign institutional investors (FIIs), the lifeline of the Indian equity market continue to show confidence in India. Since September 2013 FIIs have invested $12 billion in Indian equities.
A recent study by Axis Capital revealed that the ownership of FIIs in Nifty 50 companies at the end of March 2014 quarter has hit an all-time high of 22.8 per cent. This is 40 basis points (bps) higher than in the December 2013 quarter. The change in FII holding has come after Narendra Modi's name was announced as the BJP's prime ministerial candidate.
FII continue to show confidence in IT services companies in particular. For three consecutive quarters FIIs have increased their holding in IT services companies. For the March 2014 quarter, FII holding in IT services was up at 22.1 per cent, as against 20.6 per cent in December 2013 quarter. Since June 2013, FII holding in IT services has increased 7.6 per cent from 14.5 per cent. FIIs are overweight in Infosys, TCS, HCL Technology and Tech Mahindra.
Apart from IT services, BFSI (Banking Financial Services and Insurance) and Engineering were the only other two sectors that saw FIIs buying in the March 2014 ended quarter. FII holding in the BFSI sector rose to 29.2 per cent and in engineering sector to 2.6 per cent.
Meanwhile FIIs continue to pare position in FMCG. The FII holding in FMCG sector was at 9.3 per cent in March 2014, down from 11.4 per cent in June 2013. This is due to the reduction in FII position in Hindustan Unilever. On the other hand, domestic institutional investors (DII) increased its position in FMCG in March 2014 to 15.1 per cent from 14.8 per cent in December 2013. DII increased its stakes in ITC.
HDFC Bank, Infosys, TCS, HDFC Bank and Reliance Industries were the top 5 portfolio stocks for FII in the Nifty. These five stocks accounted for 37 per cent of the overall weightage of the FII holding in Nifty 50 stocks.
Meanwhile FIIs continue to pour money into India. In fact it's not just India, but FIIs have remained positive across emerging market in April. With the tapering in the US already been discounted by the market and interest hike in US not expected in the next 12 months the foreign flows is expected to remain positive. In fact expectation of another QE in Euro-Zone and in Japan will further increase liquidity in the world that augurs well for emerging markets like India. However for strong money flows to continue structural reforms and policy changes to attract investment will be key job for the new government that will come into power by the end of this month. So far the expectation in the market is BJP-led National Democratic Alliance (NDA) government will come into power this May.
Until the outcome of the general election, the Indian market will react mainly on global cues, currency and FII flows. On Thursday, May 8, 2014, both European Central Bank and Bank of England will hold its monetary policy meeting. Some key results from domestic companies like HDFC, Lupin, Ranbaxy Laboratories, Glaxosmithkline Consumer Healthcare, Titan, Canara Bank and Union Bank will remain in focus. At the current market levels there is no room for error and investors should stay guarded on their optimism and keep sufficient room for safety. In fact investors until May 16, 2014 will be better-off waiting on sidelines at this juncture.
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