>INSTITUTIONAL OWNERSHIP TRENDS: Off with risk, welcome to defensives

In the backdrop of weak market sentiments, institutional flows for the second quarter came in at a tepid USD1.4bn, the weakest in last 10 quarters. Overall ownership holdings for BSE-100 remain largely unchanged with FIIs owning about 17% of BSE-100 and DIIs owning about 12%. From a portfolio perspective, FII ownership levels have hardly changed despite a 20% sell off in markets in the last 12 months. Our analysis also suggests that the street may be underreporting the extent of DII ownership given that some companies report holdings by pvt insurance players under the “Corporate Bodies” segment. On a sectoral basis, both FIIs and DIIs have increased their relative weights within the pharma sector while scaling back on cyclicals. We estimate FIIs to have added most to their positions in M&M and ITC while slashing in SBI and Axis Bank.

■ Domestic ownership: Street seems to be understating

As per the current reported data, DIIs hold about 12% in BSE-100. However, we observe that it may be slightly understated given that some companies report the stake of private insurance companies within “corporate bodies” which is not a part of the institutional segment. Though we cannot pin down the precise amount of stake, our calculations for the Sensex universe suggests that Street may be understating the ownership of DIIs by at least 60bps.

■ FII ownership: Largely stable despite sell-off

Interestingly, between Q2FY11 and Q2FY12, BSE-100 index shed about 20% even as FII ownership levels remained largely flattish (a trivial decline of ~50bps only) in contrast to the trend in FY09 crisis period. We believe that the general risk-off environment has not yet induced selling across the board and that there remains a continued appetite for bottom up ideas. Interestingly, with the recent underperformance of India, FIIs have been deviating from the benchmark BSE-100 index in search of higher returns.

■ FIIs, DIIs up relative weightage in pharma, but scale down cyclicals

Within both FII and DII portfolios, there was an increase in the share of pharma sector relative to the benchmark BSE-100. FIIs have increased their underweight on global cyclicals (materials and energy) while positioning themsel ves 300bps below the benchmark within in that segment. DIIs have trimmed their relative position within domestic cyclicals. On an overall basis, FIIs are overweight on BFSI and software while DIIs are overweight on consumer and cap goods sector.

■ FIIs shed SBI, Axis, but stock up M&M, ITC

On an average price basis, we estimate that the highest FII selling in Q2FY12 took place

BFSI followed by materials. The largest buying was seen in consumers and auto. We estimate that SBI and Axis Bank within BFSI and Tata Steel and Hindalco within materials sector were the most sold while M&M was among the most bought.

To read the full report: OWNERSHIP TRENDS

RISH TRADER