The mindset of investors is evolving in India and that is evident now. Are you wondering about the factors that make this so evident? Primarily, it is contradictory investment perspective of the foreign portfolio investors (FPIs) and domestic mutual funds.
While the FPI ownership in the stocks listed on NSE has been dropping for the past five quarters, and in this first quarter of FY2025, it dropped to even a 12-year low, the domestic mutual fund on the other hand increased their ownership to a record high.
Shift from FPIs to Domestic MFs
The broad market equity index – Nifty 500 has been considered for this analysis, and it has been found that the ownership of foreign portfolio investors has decreased over the past five quarters and the dip has been gradual and consecutive. In the January-March quarter of 2024, the FPI ownership dropped 24 basis points or 18.7% quarter-on-quarter. The same has dropped to a further 17.6% in the April-June 2024 quarter, which has been a 28 basis point drop.
However, there is a catch here. While the FPI ownership decreased in the overall number of NSE listed stocks, the same has even increased in Nifty 50. It went up by 15 basis points in the last quarter.
While FPIs are reducing their investments in Indian equities, the domestic mutual funds are pouring money into it. Domestic ownership has gone up to 9.2% in overall NSE-listed stocks, in Nifty 500 it went up by 9.6% while in Nifty 50, the ownership of domestic investors went up by 11.1% in the last quarter. It was around ₹ 1.3 lakh crore that was invested in the equity market in India just by domestic MFs.
FPI Investments in the June quarter
The current analysis and reports suggest the most liked sector of the FPIs is the financial sector. They are investing in the blue chip companies in this sector. Apart from the financial space, FPIs are positive on communication services, which can also be a result of the recent tariff hikes. However, FPIs are shying away from industrial sectors, materials, and even consumer staples. This questions the consumption outlook of the economy. Even FPIs are negative about the IT sector, which is probably due to the recession fear looming and they didn’t even spare the healthcare services and stayed neutral for the sectors like consumer discretionary, and energy sectors.
Domestic MFs Investments in the June Quarter
While domestic MF ownership has increased in NSE stocks, the preference of sectors remains the same to a great extent. The domestic MFs also reduced their investments in materials and consumer staples significantly. Similar to FPIs, domestic MFs also reduced their stake in the healthcare sector but remained neutral for the IT sector and communication services.
Changing investment landscape
While earlier domestic investors, domestic MFs were highly influenced by foreign investors, now the times have changed. Domestic investors, MFs are now investing in the future of the country and have faith in its economy as seen from the changing landscape in the investment space.
On the other hand, the promoters are also increasing their ownership in the Nifty 500 stocks or all other stocks listed on the NSE continuously for the past five quarters. In this June quarter, the promoters’ ownership increased by 14 bps on a QoQ basis. It touched a 7-month high at 50.9% in the Nifty 500 while rising to 51.5% for overall NSE-listed companies.
However, the share of foreign promoters and government was higher especially when the share of private Indian promoters declined in the 2nd and 4th quarter.
While FPIs and domestic MFs were mainly positive about Nifty 50 stocks, promoters have been pulling out their investments from these 50 stocks and this led to a 54 bps decrease in Q1FY25 compared to the previous quarter. . .
Though the ownership of retail or individual investors dropped in the December’23, and March’24 quarters, in the June quarter it went up by 10 basis points. This has been possible due to net investments by retail investors, which went up the ladder. Except the consumer staples and materials, the retail investors preferred all the sectors in the June quarter.
Wrapping up
The Indian investment landscape has been evolving rapidly and with the growing economy, it will be interesting to see how the ownership pattern changes over time. Investors need to know the ownership pattern as the same plays a crucial role in the price movement of the stocks.
Source: NDTVProfit
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