FII Fund Flow - Half Yearly report

FII Flows on a half yearly basis discussed here for broader perspective

FII ownership jumps sharply as investor risk appetite recovers; The latest data of BSE 500 stocks indicates that institutional shareholding of Indian markets has increased as the decline in domestic institutional investor (DII) ownership has been more-than-compensated by a sharp increase in foreign institutional investor (FII) ownership.

As of end-September 2010, FIIs owned 15.3% of Indian markets (compared to 14.4% in June 2010 and 14.6% in March 2010), while DIIs owned 10.9% (compared to 11.1% in June 2010 and 11.0% in March 2010). We believe the sharp jump in FII ownership is a consequence of an increase in risk appetite as investors priced in QE2 & QE3 numbers. However, it may reverse in subsequent quarters on account of India’s overvaluation and re-emergence of policy overhang in China and Europe. Another major dampener could be the increased confidence on US stocks ebbing the flow of FII’s.  

Over the past 2-3 quarters, FIIs have continuously increased their stakes in banks. Notably, this quarter, FIIs have increased stakes in telecom and staples – formerly ‘unloved’ sectors. In reality, while FII bought almost all sectors, their stakes in autos, engineering and construction (E&C), IT and metals declined owing to the relative underperformance of these sectors. A bulk of the FII inflow was concentrated in financials, consumer staples and telecom. The ownership and FII flow data confirms the India consumption story and shows how enamored FII’s are about the great Indian Middle Class.

In any emerging economy and where consumption is on the rise the Banking sector records one of the fastest growths. From an FII point of view he knows that the financial sector can give the maximum returns in an economy; In India the financial sector is fully regulated and the plus point is not exposed to the global credit market what more can you ask for.

DIIs behaved differently; DIIs have sold almost all sectors but more heavily in financials, E&C and capital goods and consumer staples. The sale of DII’s could probably be due to the mass scale redemptions by the retail segment coupled with a very myopic view of the markets.  

FIIs have bought almost all sectors but the inflows have predominantly (about 85%) gone into financials, engineering and capital goods, consumer staples and telecom. DIIs have sold almost all sectors but, interestingly, the selling has predominantly been in financials, engineering and capital goods and consumer staples. Both DIIs and FIIs have bought telecom, reflecting improved investor perceptions of the sectors fundamentals.

FII Flows for December have not been included here…