Indian private banks still hold charm for FIIs

K. T. Jagannathan

Indian private banks appear to be the favorite parking slot for foreign institutional investors (FIIs). A quick perusal indicates that they are rather bullish about the Indian private banks.

FIIs holdings in India’s Nifty-500 Index stood at 20.8% in the first quarter (April-June) of FY 21, remaining at a 5-year low.

The holdings of FIIs in the top 500 companies increased by10 basis points on a quarter-on-quarter basis. However, they declined by 130 basis points on a year-on-year basis, according to an analysis by a well-known research outfit, Motilal Oswal.

A dip into their absolute holdings reveals an interesting clue. Out of the total FII holding of USD 362 billion, private banks top the list with investments worth USD 81 billion.

In the Nifty-500, FIIs have the highest ownership in private banks (44%), followed by non-banking finance companies (31.6%), oil and gas (22.4%), telecom (20.6%) and real estate (20.5%).

The financial sector had indeed a dominant run over the past few years. However, the underperformance of the BFSI segment (banking, financial services, and insurance) continued to reflect in FII allocation, which was down from 45.2% in December 2019 to 40% in March 2020. It further trimmed to 38% as of June 2020 in the Nifty-500, the report said.

The FIIs, nevertheless, still remain significantly overweight in BFSI and underweight in consumer, capital goods, healthcare, and technology.

FIIs have reduced ownership in 68% of Nifty-500 and 74% of Nifty-50 companies on a quarter-on-quarter basis, it said.

Equity mutual funds saw net outflows in July

In the meanwhile, equity mutual funds in India saw a net monthly outflow of Rs. 2,480 crore in July 2020, for the first time in four years.

After demonetization, this is the first time equity mutual funds witnessed net monthly outflows. Last time, the net outflow was Rs. 3,206 crore in March 2016, according to CARE Ratings.

Assets under Management (AUMs) of the Indian Mutual Fund industry rose 10.6% to Rs.27.1 lakh crore in July 2020 when compared to July 2019 and 6.3% sequentially.

Banks, consumer non-durables, finance, software, pharma, and petroleum products were the top six sectors where equity AUMs invested their funds in July 2020. They cumulatively accounted for over 64% share of equity AUMs equivalent to Rs.7.09 lakh crore, Care Ratings said.

The equity funds have suffered on account of the economic slowdown and increased market volatility due to the Covid-19 pandemic.

Meanwhile, the assets of the debt AUMs increased to Rs.13.9 lakh crore in July from Rs.13.0 lakh crore in June 2020 and Rs.12.2 lakh crore in July 2019.

In July 2020, the largest proportion of debt funds were invested in corporate debt papers worth Rs.3.70 lakh crore. This segment includes floating-rate bonds, non-convertible debentures et al. The second-highest category in which debt funds invested their money was commercial papers (CPs) with Rs.2.70 lakh crore. When compared with the previous month, this segment witnessed a decline of close to Rs.2,000 crores, and percentage share also dropped to 17.5% of debt AUMs from 18.3% in June 2020.

On a year-on-year basis (26.3% in July 2019) the percentage share in the commercial papers segment decreased by 8.8% largely owing to an increase in percentage share of treasury bills from 6.4% in July 2019 to 14.9% in July 2020. Investments in treasury bills stood at Rs.2.29 lakh crores in July 2020, a rise of Rs.0.28 lakh crores over June 2020, it added.