Local institutions pare holdings for fifth quarter in row

Domestic institutional investors, or DIIs, continued to reduce their stake in Indian companies for the fifth consecutive quarter in April-June as cash holdings stayed high and inflows lacklustre.
Mutual funds, insurance companies and treasuries collectively pared their holdings in companies by 21 basis points (bps) in the June quarter over the preceding quarter, according to a sample of 237 of the BSE 500 companies that have declared their shareholding patterns so far. Hundred basis points make a percentage point.

With this, the DII stake in companies has come down 1.12% from 10.91% to 9.79% since June 2010.

Domestic institutions have reduced their stake in 136 of the 237 companies in June quarter, increased their stake in 87 and left the proportion of holding unchanged in 14.

Out of the 23 constituents of the Nifty index that have declared their shareholding patterns, 12 showed a decrease in DII shareholding over the March quarter.

Out of the 13 Sensex companies which have declared their shareholding, eight showed a decrease in DII stakeholding.
“There could have been an increase in cash levels on account of the uncertainty that prevailed because of global events such as the European debt crises,” said K Ramanathan, chief investment officer at ING Investment Management India.

The average cash levels in equity mutual funds are said to be in the 7-8% range, while those in insurance companies are said to be at 10%.

“The money flow has not been significant and people may be sitting on cash to cushion the effect of market volatility,” said Saibal Ghosh, chief investment officer at Aegon Religare Life Insurance Co.

Mutual funds received net inflows of `490 crore during the June quarter while similar figures for insurance companies were not available.

On the other hand, foreign institutional investors increased their stake in 130 companies and reduced them in 101, raising their average stake in the companies from 13.67% to 13.78%. Six companies reported no change in FII shareholding.

Promoters reduced their stake in 47 companies and increased it in 25, with 165 remaining unchanged. Their average stakeholding rose from 52.75% to 52.86% quarter on quarter.

Retail participants reduced their stake in 123 companies while increased it in 109 companies. Five companies reported no change in shareholding. The average shareholding rose from 13.22% to 13.39%.

Challenges such as high crude prices, rising interest rates, inflation and resultant growth slowdown are affecting sentiment among domestic institutions, says Nirakar Pradhan, chief investment officer at Future Generali Life Insurance.

Local institutions pare holdings for fifth quarter in row
“In such a scenario, domestic institutions have been putting their money in fixed income products which are offering better risk adjusted returns in the near term,” he said.

There may not be too much deployment at current levels and people are likely to wait for a 3-5% correction, said Ramanathan K.

“Markets are expected to be volatile in the near term but the second half of the year is expected to be better than the first. Also, people will begin to factor in earnings for FY13,” he said.
Among the global factors, a reversal in commodity and energy prices could help a potential upside, says Saibal Ghosh.

“Also, some clarity is expected on interest rates after the policy and we may see some activity in interest-rate sensitive sectors. Banking and finance could also do well if the situation improves,” he said.

The Reserve Bank of India is expected to increase interest rates further to tighten liquidity in its monetary policy review meeting on July 26.

HSBC Securities Economist Leif Eskesen and Associate Prithviraj Srinivas in their July 15 report said they expect a 25 basis point hike in the RBI review meet.

“With markets having corrected sharply over last six months, DIIs have again started buying selectively as valuations look reasonable if not very attractive. We may see larger inflows from domestic institutions in next 2-3 months as domestic concerns ease off,” said Pradhan of Future Generali.

Mutual funds were net buyers by `1,172 crore in the last quarter and foreign institutions by `5,218 crore, according to data from the Securities and Exchange Board of India.