Domestic institutions such as mutual funds have been less bullish about the Indian stock market than foreign institutional investors during the recent rally.
FIIs have hiked stakes in half the stocks in the CNX 500 index, from the time market hit a low in December 2011. In contrast, DIIs were pessimistic, selling stakes in 60 per cent of the stocks.
In sectors, too, FIIs and DIIs made very different bets. For this analysis, the 377 companies of the CNX 500 which have disclosed September 2012 shareholding were considered.
Opposing views
Overall, FII holding in the CNX 500 stocks went up 1.5 percentage points to 17.2 per cent of the market value between December 2011 and September 2012.
FIIs added stakes in five out of every ten stocks, with a significant increase of three percentage points or more in a good many.
Godrej Properties, Godrej Consumer, Delta Corp, Karur Vysya Bank and Tata Global Beverages saw a big rise in FII stake. Significant decreases were much fewer.
This is in contrast to DIIs, whose holding has stayed put at 10 per cent through this rally.
They shed holdings in six out of every ten CNX 500 stocks. Escorts, Ashok Leyland, Akzo Nobel and Jyoti Structures saw a significant fall in DII holdings.
According to leading domestic fund managers, the recent reform moves do not change the immediate earnings prospects for Indian companies. They believe that corporate profits, which have been declining in recent quarters, may not recover soon without triggers such as further interest rate cuts.
Sector calls
The contrast between the two sets of investors is starker when it comes to sectors. For example, FIIs picked up stake in retail stocks — Page Industries, Trent and Titan Industries saw a rise of at least four percentage points between December 2011 and September 2012.
DIIs, however, shunned the sector, selling the same stocks by an almost equal measure.
Optimistic ON reforms
FIIs seem to have been more optimistic about measures such as permitting more FDI in retail than domestic fund managers.
Similarly, DIIs made the most of the phenomenal run in FMCG and pharmaceutical stocks by reducing their holdings, while FIIs did the exact opposite.
Similar trends emerge in such sectors as refineries, auto-ancillary, fertilisers and capital goods. Domestic brokers have been expressing concern about the high valuations of consumer-themed stocks.
FIIs also turned away from banking, power and education sectors, while DIIs were less bearish.
For instance, Adani Power, Lanco Infratech, JSW Energy and NHPC saw FIIs shedding stakes of a percentage point or more while DIIs either picked up holdings or made only slight reductions.
Performance-wise, stocks which FIIs bought fared better than those which DIIs preferred. However, with sectors other than defensives now garnering attention, this may change.