Stocks out of favour with foreign investors feel the market heat too

If foreign portfolio investors (FPIs) catch a cold, the market sneezes.

An analysis of BSE 500 stocks shows that one in every two whose prices have dropped in this period has simultaneously seen the FPIs trim holdings in it. FPI holdings in BSE 500 stocks as at end-March 2015 and end-June 2015 (latest available data) have been considered for this analysis. The persisting volatility is yet another indicator of the FPIs’ hold on the market, with its key gauge, the Sensex, falling 12 per cent from a peak of 30,000 points that it hit intra-day on March 4, 2015.

Of the 326 stocks whose returns since early March 2015 are down, the FPIs have reduced stake in as many as 173. The period shows a clear shifting of FII interest out of public sector banks that have NPA (non-performing assets or bad loans) worries, select cyclical stocks which have become overheated, and mid-tier IT companies whose valuations have expanded. For instance, Oriental Bank of Commerce, which dropped 45 per cent in this period, saw FII holdings come down from 12 per cent as at end- March 2015 to 9.2 per cent at the end of June 2015. Similarly, stocks of other public sector banks in which FPIs cut stake — IDBI Bank, Canara Bank, UCO Bank, United Bank and Syndicate Bank — also fell 25-40 per cent.

Cyclical auto-ancillary stocks trading at high valuations after the 2014 rally also fell out of favour. For instance, the FPIs cut holdings in Bosch and SKF Bearings that saw their stock prices decline 11 and 17 per cent, respectively.

Stocks with weak performance and outlook, such as Exide Industries, weren’t spared either by the FPIs or the market.

Mid-tier IT stocks such as Persistent Systems, whose valuations moved up sharply in the 2014 rally, corrected 25 per cent in this period. FPI holdings in the stock now stand at 20.3 per cent against 22.5 per cent at end-March. KPIT Technologies is another mid-tier IT stock that has followed in Persistent’s footsteps.

Besides, with commodities entering a bearish phase and the Chinese slowdown adding to their woes, the FII interest in mining and steel waned during this period. Sugar has fallen out of favour both with the FIIs and the market.

On the other hand, with urban consumption looking up, the FPIs have turned their attention to such sectors as media and entertainment, retail, and consumer durables.

Stocks that gained in this period, such as Bajaj Electricals (up 10 per cent), Hitachi Home (13 per cent), Symphony (7 per cent), TTK Prestige (10 per cent), Page Industries (18 per cent), Jubilant Food works (4 per cent), Dish TV (28 per cent), Jagran Prakashan (4 per cent), Den Networks (5 per cent) and Eros International (13 per cent), have all seen FPI holdings move up.

Another sector FPIs have favoured is healthcare, thanks to strong prospects in the US markets and, more recently, the rupee depreciation which will aid pharma exports. Stock that moved up in this period and where FPIs too increased their stakes include Astra Zeneca, Glaxosmithkline, Sanofi, Unichem, Jubilant Life, Ajantha Pharma, Biocon and Glemmark Pharma.