Domestic share owners are “price setters” in India, said Morgan Stanley, at a time equities saw the worst foreign selloff in the first half of this year.
“The combined holdings of domestic mutual funds and direct households in stocks have risen over 720 basis points since 2015, whereas those of foreign portfolio investors have declined about 230 bps,” the financial services provider said in a July 26 research report co-authored by Equity Strategists Ridham Desai and Nayant Parekh and Equity Analyst Sheela Rathi.
“The last quarter (Q2 2022) alone saw a near 90-bps rise in domestic ownership, while FPI ownership of our sample of 75 companies fell 84 bps quarter-on-quarter. At 25.6% ownership of India's largest 75 companies, domestic investors are now larger holders than FPIs for the first time since 2010.”
Average sector positions, it said, went higher in the latest quarter led by domestic institutions, albeit FPIs continue to run more active portfolios. “We are in a macro-driven market, implying that sector positions should be wider than normal as we have been doing since Q1 2022.”
Morgan Stanley is ‘overweight' on financials, on domestic cyclicals (consumer and industrials) and technology; and ‘underweight' all other sectors.
FPIs, it said, are ‘overweight' on financials and lifted the relative position by 40 basis points during the quarter, after taking it down for five consecutive quarters. “The biggest FPI selling happened in technology where they have gone ‘underweight' during the quarter. FPIs are also ‘underweight' on consumer discretionary and industrials—distinct from our recommendations.”
While domestic institutions added to technology during the quarter, they remain underweight, the report said. They also added financials and consumer discretionary but are ‘overweight' on neither. They are ‘overweight' on communication services, consumer staples and utilities. “The only sector where we are in sync is industrials, where we recently raised our weight.”
FPI Flows
FPI selling in Indian equities in the first half of 2022 is the worst in 30 years, since data became available.
This is only the fifth time in 30 years FPIs remained net sellers during the first half of a calendar year.
In 2020, after the Covid-19 pandemic roiled global equities, FPIs had turned net buyers in the second half of the year. In contrast, in the previous instances of selloff, FPIs dumped stocks for the whole year.
FPIs have been pulling out for nine straight months. June 2022—the latest available full-month data—witnessed the worst foreign selloff in these nine months as well as since March 2020.
Information technology and financial services stocks witnessed the most FPI selling in June 2022.
According to the first fortnightly data in July, FPIs have sold Rs 7,432 crore during the period, indicating easing of the selling pressure.
Also, India's stock benchmarks posted their best ever month in July. The Nifty 50 climbed the most in two months during the period.
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