India Equity Strategy -Owning India Inc - Foreigners Flee?

Citibank Smith Barney
Foreign ownership has single-largest quarterly fall-Latest data show foreign institutional ownership of the Indian corporate universe dipped sharply in the first quarter of the year.

FII (FI+ADR+GDR) share of the BSE500 now stands at 17.8%, down nearly 2ppt from Dec2007, and almost back to June 2005 levels.Promoters pick up the slack-Promoter share of the BSE500 picked up ~2.9ppt, rising to 58.2% in the quarter - the highest level in 32 quarters, suggesting continued promoter confidence even in a weakening market.

Public shareholding continues to dip (9% now vs. 9.4% earlier), and domestic institutions continue to maintain share at 8%.Foreigners top sellers-FIIs have been the top sellers in the correction, bucking the trend of rising foreign ownership leading to market performance. Even as the drop in public shareholding was a continuation of the downward trend since March 2001, the fall in FII ownership was the sharpest over the same period.

Financials out of favour with domestic players, Telecoms liked by all - From a sector perspective, domestic institutions were strong sellers of Financials in the quarter, moving from an overweight to an underweight. Telecom companies were strongly in demand overall, while the consensus outlook on Industrials and IT Services was neutral.

FIIs had contrarian positioning vis-à-vis domestic institutions on Materials and Utilities. In our model portfolio, we are overweight Financials, Telecoms, IT Services and Pharma. We are neutral on Energy, Consumer and Industrials, and negative on Materials and Utilities.