Banking sector clear favourite with FIIs: Merrill

The banking sector continues to be among the top sectors where foreign institutional investors hold more equity than indicated by the Morgan Stanley Capital indexes.

A recent study by Merrill Lynch on stock ownership profile, as on September 30, shows that FIIs were mostly over-weight on the banking sector, and on ICICI Bank and State Bank of India, in particular.

While the information technology sector continues to be the next over-owned sector in spite of the increase in the sector's weight following the hike in Infosys's free float.

The fast moving consumer goods sector continues to be under-owned by FIIs. The energy and materials sectors are other under-owned sectors.

The Merrill Lynch study is based on FII holdings in individual companies, aggregate FIIs portfolios and the percentage holdings in various stocks and sectors.

Further, this has been compared with the MSCI weights to determine the sectors and stocks where FIIs are over- and underweight.

According to the study, software stocks Infosys Technologies and Satyam Computer continue to be the most over-owned stocks in spite of the increase in the weightage of Infosys in the index.

"This is partly led by the fact that investors are hedging their holding in these stocks against their under-weight position in Wipro, which is among the most under-owned stocks," the report said. Meanwhile, within the banking sector, FIIs are over-weight on ICICI Bank, State Bank of India and Housing Development Finance Company.

Elsewhere, in the pharma sector, Ranbaxy Laboratories remains over-owned though Cipla is under-owned by FIIs.

Media major Zee Telefilms has slipped out of the top 10 over-owned stocks and ACC is the new entrant even though FIIs have reduced their weightage in ACC too during the quarter ended September 2002.

Among the large under-owned stocks, FMCG major Hindustan Lever continues to occupy the second position after Wipro, according to the Merrill Lynch report.

The merger of Reliance Petroleum into Reliance Industries has also increased the under-ownership in the latter.

Over the past quarter, FIIs have continued to be buyers in financial sector stocks such as HDFC Bank, HDFC and ICICI Bank in spite of their overweight stance on the sector.

Also, FIIs have increased their holding in larger market capitalisation companies such as Infosys Technologies, Wipro, Satyam Computer and Digital GlobalSoft while selling in smaller companies such as NIIT and Hughes Software.

According to the report, the poor monsoon led to selling in consumer stocks such as Hindustan Lever, ITC and Bajaj Auto. Additionally, the report notes that the lack of progress on privatisation has led to selling in public sector units stocks such as MTNL, Hindustan Petroleum and BHEL.

Likewise, domestic mutual funds too have been bullish on software companies such as Infosys and Satyam Computer and negative on Wipro, the report added.

Similar to FIIs, domestic mutual funds were underweight on Hindustan Lever. However, the similarity ends here.

Domestic funds are underweight on financial sectors. All four large stocks in the sector—HDFC, HDFC Bank, State Bank of India and ICICI Bank, are under-owned by mutual funds.

"We believe this is mainly skewed by the Unit Trust of India's holding," the report adds.

Elsewhere, domestic funds also continue to be overweight in oil PSUs such as Bharat Petroleum and Hindustan Petroleum.

The buying pattern of domestic institutions over the past quarter again has been in contrast with the FIIs.

Domestic mutual funds have bought public sector stocks such as Mahanagar Telephone Nigam, Hindustan Petroleum, besides Bajaj Auto and ITC.

Funds have also marginally increased holding in Zee Telefilms. In contrast, they have reduced their holdings in HDFC and Satyam Computer that FIIs were buying.

In case of promoter holding, Nestle saw promoters buying a block of shares from the market.

Also, there continued to be some increase in promoters' holding in EIH, Bajaj Auto and Gujarat Ambuja. While there has been a marginal fall in promoters' holdings in Satyam Computer and Zee Telefilms.