In contrast, financial, consumer durables, metals and real estate shares caused a drop in FIIs’ AUC between January and November. This indicates the wealth of FIIs that stayed invested in these sectors have suffered an erosion.
The value of FII investment in the domestic equities market rose by Rs 1,25,348 crore to Rs 12,85,686 crore in the 11 months till November. The value of their investments in the IT sector alone rose by Rs 80,592 crore.
While the stock prices of most IT firms rose, resulting in wealth creation for the FIIs, the institutional category also increased its exposure to many IT firms.
MindTree (FII stake up 9.77 per cent), Oracle Financial (6.52 per cent), KPIT Technologies (6.10 per cent), Polaris Financial (6.10 per cent) and Tech Mahindra (4.21 per cent) are some of the IT stocks where FIIs raised their stake substantially in the last three quarters. FIIs also raised their stake in HCL Tech (4.21 per cent), Wipro (1.53 per cent) and TCS (0.82 per cent) during the three quarters.
“FII fund flow in 2014 may not match the $20 billion figure of this year. Since the US central bank will start reducing the pace of bond buying from next month, global liquidity will get narrowed. FIIs will be focusing on IT, pharmaceutical and other export-oriented sectors,” said Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.
“There are many capital-intensive sectors which have seen a good amount of buying in recent days on hopes of a stable and industry-friendly government after the general elections. However, till the time structural issues in these sectors are fixed, FII inflows into these sectors may not be stable,” Sinha added.
Data show pharmaceutical and FMCG sectors expanded FII wealth by Rs 25,645 crore and Rs 10,069 crore, respectively, in the first 11 months of calendar 2013.
Drug stocks such as Strides Arcolab, IPCA Labs, Dr Reddy’s, Biocon and Aurobindo saw FII stake going up by between 5 per cent and 16 per cent. Among the FMCG firms, Jubilant Foodworks, Britannia, Emami, McLeod Russel, TGBL, GCPL and Dabur India saw FII stakes go up by between 1 per cent and 4.55 per cent.
“We have seen a slowdown in volume growth for FMCG firms and it has started reflecting in their stocks’ recent underperformance. We expect the next year to be challenging for the scrips,” said Gaurav Dua, research head of Sharekhan.
The BSE IT index has gained 57.68 per cent so far this year. The BSE HC index and the FMCG index have risen by 22.36 per cent and 9.84 per cent, respectively.
Dua said stocks of sectors such as IT and pharmaceutical could gain as export prospects got better due to the US taper impact on the rupee depreciation and recovery in the US economy. He expected select stocks of private sector companies moving up 2014, but said concerns over the asset quality would continue to haunt public sector banks.
Financial services — banks, housing finance companies, investment companies, NBFCs and other financial institutions — saw the value of FII investments in them eroding by Rs 31,452 crore, or 27.76 per cent of their holdings, to Rs 3,23,267 crore from Rs 3,90,572 crore at the end of 2012. Of this banking stocks alone caused a 62 per cent erosion in FII holdings to Rs 1,88,612 crore.
Yes Bank, Dena Bank, Karnataka Bank, Andhra Bank, Allahabad Bank and City Union Bank are some of the stocks where FIIs cut stake by between 1.22 per cent and 13.21 per cent in three quarters.
Nonetheless, the financial services sector remains the largest area of FII focus. The value of FII holdings in consumer durables, metals and mining and realty stocks dropped by 12.86 per cent, 26.09 per cent and 26.88 per cent, respectively.
“Cyclical sectors could be at risk due to the weaker investment cycle and stretched sentiment,” Barclays said in a strategy note last week.