Some time back, I was trying to look at FII holdings in the Indian companies. I used Nifty as a benchmark. The study threw some interesting facts. I am presenting them below and my comments on why this is possibly happening.
As can be seen, foreign ownership in banks is significantly higher. One obvious reason is limited float in some of the large companies - a) Government owned entities like NTPC, ONGC and b) companies like TCS, Wipro where promoters have done limited dilution. There could be other reasons like limit on FDI in a particular sector like retail,insurance but would have limited impact. I think, India still has lot of regulatory and other operating risks. Much of the raw material usage is regulated; many of the utilities like power, telecom,transport have strong regulatory bodies. Agriculture, although large in size is very fragmented. In this scenario, banks are mostly likely to be perceived as aggregator of risk. Plus, there is an implicit assurance that Government would not let the bigger banks fail due to systemic threat to the economy.
This gets even more interesting if you look at FII holdings of real estate companies Vs that of housing finance companies.
Real estate sector in India is attractive and has more FII holding than Nifty. However, real estate financiers are preferred a lot more. I think this is on two accounts. Real estate financers have two important loan assets - loans to real estate companies provide high yield, while loans to individual homeowner would provide stability in terms of low default (Indian consumers are very sensitive about loan default, especially on mortgaged house). This offers best risk-return profile.
| Market Cap (bn) | FII (%) | |
| Nifty - overall | 29,584 | 17.8% |
| Nifty - ex-banks | 25,057 | 15.3% |
| Nifty - banks | 3,633 | 30.0% |
| Banks - overall | 6,061 | 22.5% |
As can be seen, foreign ownership in banks is significantly higher. One obvious reason is limited float in some of the large companies - a) Government owned entities like NTPC, ONGC and b) companies like TCS, Wipro where promoters have done limited dilution. There could be other reasons like limit on FDI in a particular sector like retail,insurance but would have limited impact. I think, India still has lot of regulatory and other operating risks. Much of the raw material usage is regulated; many of the utilities like power, telecom,transport have strong regulatory bodies. Agriculture, although large in size is very fragmented. In this scenario, banks are mostly likely to be perceived as aggregator of risk. Plus, there is an implicit assurance that Government would not let the bigger banks fail due to systemic threat to the economy.
This gets even more interesting if you look at FII holdings of real estate companies Vs that of housing finance companies.
| Market Cap (bn) | FII (%) | |
| Real estate companies | 977 | 20.5% |
| Real estate financiers | 1,065 | 54.7% |
| Banks | 6,061 | 22.5% |
Real estate sector in India is attractive and has more FII holding than Nifty. However, real estate financiers are preferred a lot more. I think this is on two accounts. Real estate financers have two important loan assets - loans to real estate companies provide high yield, while loans to individual homeowner would provide stability in terms of low default (Indian consumers are very sensitive about loan default, especially on mortgaged house). This offers best risk-return profile.
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