FIIs exiting Sensex Stocks

Are foreign institutional investors beginning to lose interest in frontline companies? Though it may be early to draw an inference , latest shareholding data in 8 out of the 30 Sensex companies show a decline in FII holdings.

These companies include Gujarat Ambuja Cements (GACL), HDFC Bank, Hindalco, HDFC, Infosys Technologies, Larsen & Toubro, Maruti Udyog and Reliance Communications. “Foreign funds have been actively churning their portfolios in the past couple of quarters as outlook on many sectors has changed suddenly,” said an official at a foreign brokerage house. “Also, fund managers are restricting their bets to companies where they see a reasonably good chance of making money, as only few frontline companies have been participating in the rally,” he added.

In most of these companies, foreign fund houses have been trimming their holdings in the past two quarters. The fall in FII holdings in companies like Ambuja Cements, Hindalco, Maruti Udyog and HDFC Bank is significant, while that in Infosys Technologies, Reliance Communications , L&T and Housing Development Finance Corporation is less.

Market observers are not surprised that overseas fund managers have pared their exposure to stocks like Ambuja, Hindalco and Maruti. The proposal in the Union Budget to levy a dual excise duty on cement in a bid to tame prices, soured sentiment towards the sector. And while cement shares have been rising of late, they are still off highs seen in January this year. Hindalco’s expensive acquisition of Novalis did not go down well with the market, resulting in many investors exiting the stock. Growth in automobile sales has been slipping over the past few months, prompting a sour outlook for stocks in that sector.

A fall in FII holdings in L&T during the April-June quarter is a bit surprising . The stock has been the secondlargest contributor to the 1330-point rally in the Sensex since the beginning of 2007. Also, the stock enjoys favourable ratings by leading brokerage houses, given the bullish view on the capital goods sector. This is evident from the 65% rise in the stock price since the beginning of the year. This surge, without much support from foreign funds, shows that when a new set of overseas players bought into the stock, another set of existing FII shareholders have moved out.

A similar trend was witnessed in the case of HDFC. The stock has been among the best performers in the Sensex pack so far in 2007, despite many foreign funds pulling out.