DIIs’ holdings in BSE-500 firms increase the most in 25 quarters

Analysis shows DIIs’ total holdings rose to 8.38% in December quarter from 7.52% in September quarter

  Domestic institutional investors’ (DIIs) holdings in BSE-500 companies at the end of December rose the most in at least 25 quarters as investors poured money into mutual funds in anticipation that a rebound in economic growth will boost returns.

A Mint analysis of 423 of BSE-500 companies which have announced their shareholding pattern, and for which comparable data was available for 25 quarters, show that DIIs’ total holdings in this space rose by 0.86 percentage point from the quarter ended September to 8.38% of the total shares of such companies. It was the highest such addition at least since the quarter ended December 2008.+

The last time when DIIs held at least as much stake in this set of companies was the quarter ended December 2011, when their shareholding stood at 8.45%.

“For a long time until last year, flows were negative. Not only were there less inflows, we were also facing redemption,” said Mahesh Patil, co-chief investment officer at Birla Sun Life Mutual Fund, pointing out that the scene had turned better in recent times.

In the quarter ended December, DIIs pumped in a net of Rs.1,723.98 crore in Indian shares, their highest such investment since June 2012, as retail investors channelized their investments in mutual fund schemes, to reap gains from the market rally.

“In the last nine months, we have seen the trend reversing. We have seen good inflows from domestic investors, as they are opting away from gold and real estate investments towards equities,” added Patil.

Mutual funds invested a net of Rs.12,294.5 crore in Indian equities in the December quarter, after pumping in a net of Rs.16,192.7 crore in the September quarter-which was the highest since at least March 2000.

“One year ago, most of the insurance companies were witnessing outflows in Ulips (Unit-linked insurance plans),” said Nirakar Pradhan, chief investment officer, Future Generali India Life Insurance Co. Ltd.

“Currently, insurance companies are not getting a lot of fresh inflows, but outflows have come down significantly. Going forward, we foresee more inflows in Ulip as we expect new products to be launched by various insurance companies as equity markets have picked up,” added Pradhan.

A closer look at the data showed that in the last quarter, DIIs have hiked their stakes the most in Crompton Greaves Ltd, Cummins India Ltd and Astral Poly Technik Ltd-by 6.69 percentage points, 6.54, and 6.26, respectively. They have cut their holdings the most in IDFC Ltd, Info Edge (India) Ltd, and Aban Offshore Ltd-by 2.36 percentage points, 2.35 and 2.33, respectively.

On an aggregate basis, foreign institutional investors’ (FIIs) holdings were almost unchanged in the quarter ended December. They held a total of 16.26% in the 423 companies of BSE-500 included in this analysis, compared with 16.3% in the preceding quarter.

If we look at 29 of 30 Sensex companies, with the exception of Coal India Ltd, FII stake in these companies stands at 21% at the end of December-the highest since at least the quarter ended December 2008. DIIs’ stake in this sample set stands at 13.07%-the highest since quarter ended December 2011. It has also risen by 1.25 percentage point, the most in at least 25 quarters.

Coal India was excluded from the study as it got listed only in 2010, and the data captures a comparison for 25 quarters.

There were however, some concerns that valuations were getting pricey, and that there could be a pause to the recent rally, in light of developments in Europe-relating to Greece, soft oil prices and rising primary market issuance on the domestic front.

According to Bloomberg’s estimates, the Sensex trades at 18.51 times one-year forward earnings, at a premium of 18% to its five-year average of 15.69 times. It also trades at a substantial premium of 54.5% to the MSCI EM Index which trades at 11.98 times one-year forward earnings.

Sensex has gained 29.9% in 2014, and has risen 4.9% so far in 2015. There are robust expectations that the economic growth is now on a recovery path, and earnings growth is set to pick up from hereon.

“In the last one year, the markets have rallied quite a bit on expectations earnings will turn around, and the government will deliver reforms. However, valuations have started looking expensive after the run up,” said Patil of Birla Sun Life. Patil expects market to stay volatile for some time, and says it could even see some correction.

“However, it doesn’t change the long-term optimism in the market. Inflows in funds will continue, as investors will not be perturbed by short-term jitters. Lot of people have not participated, Also, alternatives to invest are less, as interest rates are coming down,” said Patil, adding that he sees inflows into mutual funds continuing at a steady pace.


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