FII ownership of HDFC Bank has been coming down slowly. Now the leading private bank accounts for 12.7% of its AUM against 16.2% of AUM earlier.- Like retail investors, foreign investors too like small and
midcap stocks . FII holdings are still significant in midcaps at 13.8% and have risen by 1.1 percentage point in the last six months. - The overall promoter pledge in NSE500 shares has dropped by 0.4 ppt year-on-year and 0.2 ppt in the last six months, reaching 2.5% as of September 2023.
The shareholding pattern of NSE500 stocks has witnessed significant changes in recent months, with foreign investors (FIIs) and mutual funds (MFs) increasing their respective holdings in the top 500 companies listed on the National Stock Exchange. Promoters, on the other hand, have reduced their holdings across market capitalization categories. According to analysis done by IIFL Institutional Equities, foreign institutional investors continue to be overweight on private banks barring a few, while they are underweight on capital goods stocks.
Notably, FII ownership of HDFC Bank has been coming down slowly. From 16.2%, HDFC Bank has come down to 12.7% of FII assets under management in six months, and this trend may continue for the next 2-3 quarters. Earlier foreign investors were overweight on HDFC Bank with reference to MSCI but this has been coming down. As a result, the stake of foreign investors is now marginally rising in other major banks like ICICI Bank and SBI.
In contrast, domestic mutual funds are overweight on PSU banks, NBFCs, capital goods and pharma, while being underweight on IT, private banks, FMCG, paints and reliance. FMCG, IT, and metals & mining are some sectors where both FIIs and DMFs are underweight versus their respective indices.
It is not just retail investors who are betting on small and mid cap companies despite the run up in share prices. IIFL’s report on ownership data says: “At 22.6%, FII stake in large caps is significantly higher than in SMID. But FII holdings are still significant in midcaps at 13.8%, and are up by 1.1ppt, compared to a mere 0.4% rise in stake of DMFs who have reached 9.2%. DMFs have similar average stake between 9-10% across market cap categories. Five-Star Business Finance, Dixon, Medplus, Bikaji Foods, Suzlon, Timken and Vedant Fashions are some small and midcap names that both FIIs and DMFs have bought into in the last 6 months.”
The stake of promoters in NSE500 companies has declined by 1.1 percentage points (ppt) in the last six months, primarily due to the HDFC merger. HDFC Bank, which had a 21% promoter stake in March 2023, now has no promoter stake following the merger. Excluding HDFC Bank, the promoter stake in NSE500 has decreased by 0.2 ppt. It is important to note that HDFC (NBFC) is not included in the trend analysis for the current NSE500 index, leading to significant changes in promoter and FII stake post the revision of HDFCB's shareholding structure.
The overall promoter pledge in NSE500 shares has dropped by 0.4 ppt year-on-year and 0.2 ppt in the last six months, reaching 2.5% as of September 2023. The decline in promoter pledge was observed across market capitalization categories. The sectors that witnessed the highest drop in promoter pledge include Utilities (2.4 ppt), Logistics (1.4 ppt; Adani Ports), and Insurance (0.9 ppt).
Mutual funds (MFs) have been actively buying NSE500 stocks, resulting in their stake increasing to 9.1% from 8.6% a year ago and 8.9% as of March 2023. Large-cap stocks witnessed the smallest increase in MF stake, rising by 0.2 ppt in the last six months. In contrast, small-cap stocks experienced the highest pickup, with MF stake increasing by 0.6 ppt.
Individuals' stake in NSE500 stocks has remained relatively stable at around 8.8%. However, when considering market capitalization categories, individuals hold a considerably higher stake in small-cap stocks (14.1%), followed by mid-cap stocks (9.1%) and large-cap stocks (7.9%). In the last six months, individuals have seen a decline in their stake in mid-cap stocks, while their holdings in large-cap and small-cap stocks have remained stable.
The shareholding pattern of NSE500 stocks reflects a shift in ownership, with foreign investors and mutual funds increasing their stakes in small and midcap companies. Promoter stake is showing a decline, primarily due to the HDFC merger where promoter stake has come down to zero. Foreign investors are concentrating on the financial and IT sectors, as evidenced by their increased stake in HDFC Bank and other NSE500 stocks. This trend highlights the confidence of foreign investors in the Indian equity market and their focus on sectors with growth potential.