Decoding FII investments in India - Microsec

There has been extreme volatilities in Equity, Currency and commodity prices across Emerging Markets and India in particular. The volatility has been perpetuated on comments from the Federal Open Market Committee on tapering of the Quantitative Easing (QE3) probably from September13 onwards and complete withdrawal in the next 1218 months provided the US economy remains resilient. These comments from Fed led to sharp decline in US bond prices and yields jumped to ~3% from 1.6% a quarter back, simultaneously emerging markets saw a deluge of outflow from FII investors in debts and equities, particularly India. This led to sharp decline in Government of India 10Yr bond prices, yields of which jumped to more than 9%, Nifty fell ~12% and select stocks falling between ~1030%. Indian Rupee fell relentlessly against USD and other major currencies, partly due to US fed comments and partly due to ballooning India's current account deficit, which touched 4.8% of GDP in FY1213, coupled with other deteriorating macro factors.

In the current scenario, there is fear that FII's may further pull out investments from India due to US Fed tapering and falling domestic economic fundamentals. In this context, we studied the investments of FII's in India and their holdings in Nifty Companies. According to SEBI data, total FII investment in India (since inception) in USD terms is ~$138 billion and in INR terms around ~INR6,33,905 crores. The investment in INR terms is calculated by SEBI at different rates of INR/USD as and when the inflow takes place. However, in order to simplify our study, we have converted the total FII investment value or holding in India at INR64.30/USD, closing of dated 26/08/13, thus, arriving at total FII investment value in India at INR8,86,845 crores and in Nifty at INR7,66,428 crores. We understand that the FII investment in individual company may be different compared to their current value, hence we have arrived at current value in terms of their percentage holding of total equity in a company at current price.

We understand in the given scenario, fear may loom large of FII selling in Indian Equities, hence, we indicate the current value of investment in Nifty companies by FIIs, in order to make investors aware of the vulnerabilities of stock performance in highly exposed FIIs stocks. We also understand that FII may not sell in stocks with good earnings visibility and good fundamentals despite high exposure, but wherever there is concern of earnings or stretched valuations, FII's may sell such stocks. Hence, we advise investors to refrain from taking position in such stocks indicated in our report as highly vulnerable to FII sales in medium term.

Please note that this study is for the purpose of investors awareness of FII holdings in Nifty stocks and are not recommendations to BUY, SELL or HOLD stocks. Also, US Fed may not undergo tapering or harden interest rates if US economy does not improve as desired during the desired period, which may partly reverse FII stand on emerging economies and particularly India. Hence, investors need to take cautioned stance while taking investment, paring of investment decision.

We analyzed the "FII Investments" in India taking into consideration the Nifty companies with its core valuations. We observed that the current total FII Investment value in India is INR8,86,845* crores, out of which FII Investment value in Nifty companies is INR7,66,428* crore, i.e. 86% of the total FII investment value in India. We believe that the stocks having the highest FII exposure possess a greater risk of downfall as compared to other companies in case of tapering of QE3.

Out of the Nifty stocks, presently FII Investment in top five companies in value terms is INR2,99,526* crore, is 34% of the total FII Investments in India. The top five companies are HDFC Ltd, Infosys, TCS, HDFC Bank and ITC Ltd. Also, the FII Investment value in top ten companies is INR4,53,611* crore, which is 51% of the total FII Investment value in India. The other five companies which join the race along with the companies mentioned above are RIL Ltd, ICICI Bank, HUL, Sun Pharma and Tata Motors.

*FII investments in USD has been converted to INR at 64.30 as on 26/08/13 closing and may differ from other sources. Note: Some stocks in the list may have our recommendations as BUY based on different parameter. Data source: Bloomberg

Source : Equity Bulls

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