For the first time in a decade, domestic investors have overtaken foreign portfolio investors (FPIs) in the Indian market. The latest macroeconomic risks led to heavy selloff from overseas investors in the market, while domestic investors made strong gains in mutual funds and stocks combined. In the Indian market, domestic ownership alone saw an increase of 90 basis points in the last quarter, while FPI ownership in the top 75 companies declined by 84 basis points sequentially, Morgan Stanley said. The US financial services firm is bullish about the financial, consumer discretionary and industrial sector in India.
In their latest report, with equity strategists Ridham Desai and Nayan Parekh equity Sheela Rathi, analyst at Morgan Stanley, said, “Domestic stock owners are the price setters in India and have bought financials, consumer discretionary and industrials over the past quarter – our top three sector recommendations are however narrower than position size we think. Are that required in a macro – run Market,
Stanley’s data showed that since 2015, combined holdings of domestic mutual funds and direct households have climbed more than 720 basis points, while FPI holdings contracted by 230 basis points. In the last quarter, home ownership in their sample of 75 companies increased by 90 basis points, while FPIs declined by 84 basis points on a quarter-on-quarter basis.
“With 25.6% ownership of 75 of India’s largest companies, domestic investors are now larger holders than FPIs for the first time since 2010,” the Stanley report said.
Furthermore, average sector positions rose in the latest quarter led by domestic institutions, although FPIs are driving more active portfolios.
“We believe we are in a macro-driven market, which means that the sector’s position should be broader than usual as we have been doing since 1Q2022,” the report said.
Giving the Contrarian Sector Call, Stanley experts said, “We are overweight on financials, domestic cyclicals (consumer and industry) and technology and underweight in all other sectors. FPIs are overweight on financials and quarterly.” The relative position lifted by 40 bps during the subsequent quarter. Taking it down for five consecutive quarters. The position is still 540 bps down from the September-19 peak. The biggest FPI sales were in technology where they were in the quarter. have become underweight during
In addition, the Stanley report noted, “FPIs on consumer discretionary and industrial are also underweight – different from our recommendations. While domestic institutions added in technology during the quarter, they remain underweight.”
They also added financial and consumer discretionary, but not overweight on either. They differ from our view on communication services, consumer staples and utilities, the report said.
The only areas where Stanley experts are in sync are the industries where he has recently gained weight.
Finally, the report said, “Out of the top 20 total institutional holdings, active positions (relative to MSCI index) rose the most for ITC and declined the most for Reliance during QE June 2022.”
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