Domestic funds bet on bank, metal stocks in Q2 even as foreign investors turn wary

Amid the market mayhem of August, foreign institutional investors (FIIs) churned their portfolios more aggressively than domestic institutional investors (DIIs) and LIC. Thus, while FIIs reduced their presence in 31 of the CNX Nifty 50 companies, DIIs and LIC pared their holdings in 21 and 18 stocks, respectively, of the Index.

FIIs net sold ₹18,000 crore in the September quarter when the global markets went into a tizzy following the China slowdown and yuan devaluation.

During this period, India remained the favourite investment destination among emerging markets for FIIs.

They turned selective and bought underperforming shares, such as ITC, Sun Pharmaceutical Industries, Tech Mahindra and Tata Power, an analysis of top constituents of the CNX Nifty 50 companies, which saw most buying, showed.

However, Dhananjay Sinha, head-institutional research, economist and strategist at Emkay Global Financial Services, said the FII trend and sector strategy were transitory.

And indeed, after two months of consecutive selling, FIIs turned buyers in October to the tune of ₹5,528 crore.

On the other hand, domestic institutional investors, including the largest one — LIC — continued their faith in cyclicals, which are likely to benefit from a turnaround in the economy. While DIIs and LIC added companies belonging to sectors, such as banking, cement and metals, FIIs sold banking and metal sector stocks.

Sharad Awasthi, head of research at the SPA Group of companies, said banking and metal shares were clear value buys and the cement sector attracted domestic investors as cement demand, going ahead, will be the best in a decade. “LIC has always been a value buyer at lower levels,” he added.

Adani Ports and Special Economic Zone saw the biggest churn between FIIs and DIIs wherein the former bought heavily into the company while the latter sold. Earlier in mid-August, the NSE had announced that the company would be included in the CNX Nifty benchmark index from September 28.

The company had reported a sharp jump of 40 per cent in consolidated revenues y-o-y in the June quarter though net profit had risen only 12.8 per cent. It had received a big order worth ₹4,089 crore from the Kerala government in mid-July for development of the Vizhinjam International Deepwater Project.