Institutions across the board – both domestic and foreign – continued to pick up Indian stocks in the June quarter. Strategists are calling this institutionalizing of Indian equities, as the largest category of shareholders (promoters) bring down their stakes, while large financial institutions increase their stakes.
For 12 straight quarters, domestic mutual funds have been buying Indian equities, which has taken their ownership levels to 5.7 percent (up 44 basis points), the highest ever since 2001.
Other financial institutions banks and insurance –now own 7.6 percent of Indian equities, up 8 basis points sequentially. Foreign institutional ownership too hit an all-time high of 27.5 percent in the June quarter, up 59 basis points, sequentially.
According to Morgan Stanley’s analysis of institutional ownership in the June quarter, “HDFC Bank and ICICI Bank saw the most buying by foreign portfolio investors, while Infosys saw the most selling. The largest overweight is HDFC Bank, and the largest underweights are Reliance Industries and Infosys. Domestic mutual funds bought ICICI Bank the most and sold Larsen & Toubro the most. Overall, institutions bought ICICI Bank the most and sold Infosys the most.”
Institutions across the board have shown their preference for financials in the June quarter as they are overweight on the sector. Institutions are underweight on healthcare and technology sectors, given that both sectors face structural headwinds. This is in contrast to the pattern seen last year where institutions were seen to be adding staples, healthcare and technology, while reducing financials, energy and materials.
At the end of June, institutions (banks, mutual funds and foreign portfolio investors) together owned 40.7 percent of Indian equities, which is the highest level in history, said Morgan Stanley’s Sheela Rathi and Ridham Desai in a note. Sequentially, this is the sharpest increase since March 2012. While mutual funds have been on a buying spree of late, foreign portfolio investors too are not far behind. In the June quarter, FPI equity ownership rose to 27.5 percent, even higher than the September 2016 high of 27.3 percent. Domestic mutual funds now own 5.6 percent of Indian equities.