Even as foreign institutional investors (FIIs) infused $22 billion into the Indian markets in 2012, they played it safe with their stock picks. For one, they spread out their investments across many sectors, adding to their holdings in more than half the listed universe of stocks. Two, they preferred bigger names too, increasing holdings in a third of the top 100 stocks.
Unlike 2007, the last year that saw significant FII flows, they did not make heavy bets in cyclical sectors such as infrastructure, metals, realty and commodities.
Safe sectors
An analysis of the shareholding patterns of FIIs over three quarters of 2012 to September shows that FIIs bought some stocks in sectors such as pharmaceuticals, software, FMCG, IT and finance. They bought cement stocks after the sector did extremely well in the past year, thanks to pricing power. In the banking space, they went along with defensive bets like HDFC Bank. In the IT space, while TCS, Infosys and Wipro saw steady interest, dark horse Tech Mahindra saw FIIs increase holdings three-fold.
Increase in top 100
Thirty-four per cent of the top 100 stocks in the BSE 500 index saw a steady increase in FII holdings over the last three quarters. Some of these heavyweights are TCS, ITC, HDFC Bank, Tata Motors, and Hindustan Unilever. The ones which lost out were stocks such as Bharti Airtel, Hero Motocorp, Adani Enterprise and Exide Industries, all of which saw a steady decline in FII holdings.
Broad-based buying
FIIs also spread their purchases across more stocks than before, adding to their holdings in nearly 254 stocks of the BSE-500 through 2012. What this means is that, unlike 2007, when FII favourites such as realty and infrastructure crashed when they pulled out, this time around, the risk is lower. As the current rally is driven by very selective FII buying in fundamentally sound stocks, the risks may be less.
Stock specific favourites
FIIs also selected some stocks from sectors that were not market favourites. In finance, Future Ventures and Power Finance Corporation came in for buying, as did troubled infrastructure major Jaypee Infratech. FII holdings in Cairn India doubled over the last three quarters to September 12.
Other stocks that have seen a continuous increase in FII holdings over the past three quarters were Rallis India, Motherson Sumi, Kotak Mahindra Bank, City Union Bank, Siemens and ABB. Some others that consistently held FII interest were Gillette India and Godrej Properties.
In cement and pharma, the interest was broad-based. In the pharmaceutical space, six out of nine stocks; and in cement three out of four saw a continuous increase in FII holdings.
In pharma, Wockhardt saw the highest rise in FII holdings, followed by Cipla. In cement, Ultra Tech, Ambuja and ACC both saw FII buying.