Foreign institutional holdings in all major private sector banks have reduced in the range of 1 to 5 per cent in FY22 amid record sell-off in Indian equities by foreign portfolio investors (FPIs) with banking & financial services sector accounting for the major share of the outflow.
According to latest regulatory filings, FPI’s holdings in top two private sector banks—HDFC Bank and ICICI Bank—have come down by 4 per cent (y-o-y) as of March 2022. While FPIs’ shareholding in HDFC Bank reduced to 35.62 per cent as of March 2022 from 39.79 per cent as of March 2021, their holding in ICICI Bank dropped to 43.95 per cent against 47.78 per cent during the comparable period.
Axis Bank and IndusInd Bank witnessed the highest reduction in FPI holding, with foreign investors reducing their stake by 5 per cent in both these lenders. FPI holding in another major private lender Kotak Mahindra Bank as of December 2021 stood at 42.06 per cent, down from 44.23 per cent in March 2021. Kotak Mahindra Bank’s shareholding data for March 2022 is not available.
Mutual funds bet big
Even as FPIs pared down their stake in private sector banks, mutual funds, a key category of domestic institutional investors (DIIs), were betting on private lenders as they increased their stake in almost all private sector banks. Mutual funds holding in Axis Bank went up over 5 per cent year-on-year to 22.71 per cent as of March 2022 from 17.73 per cent in the year ago period.
On the other side, mutual funds have increased their stake by 3 per cent in both HDFC Bank and ICICI Bank during the previous fiscal. RBL Bank is the only private lender wherein mutual funds reduced their stake during the previous fiscal. Mutual fund holding in RBL Bank as of March 2022 stood at 11.23 per cent as against 14.21 per cent as of March 2021.
Market experts believe that FPIs reducing their stake in private sector banks was primarily on account of portfolio realignment and profit booking, and not due to any fundamental risk in the sector. Historically, banking & financial services and IT sectors account for the major portion of FPIs’ equity assets in India. As of March 2022, FPIs assets in the banking sector stood at ₹7.97-lakh crore, or 17 per cent of their total equity assets worth ₹46.91-lakh crore. The software & services sector accounts for a little over 15 per cent of FPI’s equity assets.
Banking sector biggest loser
The Indian equity market saw its highest ever outflow of foreign funds at ₹1.40-lakh crore in FY22. Rising interest rates in the global markets, withdrawal of economic stimulus by the US Fed Reserve, unsustainable valuations of the Indian stocks forced foreign investors to pull out their investments in search of better returns elsewhere. Of the total outflow, the banking sector alone lost ₹52,000 crore making it the highest loser of foreign funds in the previous fiscal.
Consequently, FPIs’ holding also dropped to 17 per cent of total equity assets as of March 2022 from 19.69 percent of equity assets a year earlier.
Impact on private lenders
The intense FPI sell-off throughout the year also had its impact on the stock prices of top private lenders. The stock price of HDFC Bank closed nearly 2 per cent lower at ₹1,470 apiece as of March 2022 against ₹1,494 per share as of March 2021. While the stock price of Axis Bank appreciated over 8 per cent during the period, it still underperformed the benchmark index S&P BSE Sensex.