Policy uncertainty seems to be the factor guiding foreign institutional investors (FIIs) in their choice of stock pickings in India.
This is borne out by the fact that between March 2010 and March 2012,FIIs have significantly reduced holdings in the BSE 500 companies operating in sectors such as construction and infrastructure,metal,telecom and real estate sectors calling for regulatory changes and investment push from the government.
According to a report prepared by ICICIdirect,while the FIIs aggregate holding in BSE 500 companies has gone up from 11.3 per cent in March 2010 to 12.6 per cent in March 2012,they have been very selective in the sectors they have increased their holding in.
While their holding went up in sectors such as automobile,banking and fast moving consumer goods (FMCG),they have reduced their exposure in construction and infrastructure,metal,telecom,realty and IT.
People are chasing safety and they are avoiding sectors which have regulatory issues,which are capital intensive and that are not showing good visibility over the next two years, said Pankaj Pandey,head of research at ICICIdirect.
While FIIs increased their holding in automobile sector from 4 per cent in March 2010 to 6 per cent in March 2012,they increased their holding in banking from 10.1 per cent to 10.9 per cent in the same period. In the FMCG sector too their holding went up from 3.6 per cent to 4.7 per cent in the same period.
On the other hand,holding in the construction and infrastructure segment went down from 9.2 per cent in March 2010 to 6.6 per cent in March 2012. It went down from 7.8 per cent to 5.4 per cent in the same period in the realty sector and from 9.5 per cent to 7.1 per cent in the metal sector. The telecom sector witnessed a dip in holding from 5.8 per cent to 4.5 per cent. IT sector too has witnessed a decline in FII holding from 4.6 per cent to 3.6 per cent as there is weak global visibility on spending.
A second development is that over the same period,FIIs have increased aggregate holdings in BSE 500 companies even as promoter and mutual fund holdings have fallen.
Promoters holding on an aggregate basis came down to 57.8 per cent from 60.4 per cent,while domestic mutual funds have reduced their holding in the companies to 3 per cent in March 2012 from a total of 3.5 per cent in March 2010. While attractive valuations have played a part in FIIs increased holding,experts say that rupee depreciation too has played a role.