As I had pointed out in my piece The Playing Field: 10 Things that Stand Out, The FII’s are a dominant Force in India. They hold 19.3% of Corporate India. In terms of absolute number this translates to around $425 billion. If one looks at it from what is available perspective the number is very significant. FII’s own 39.3% of Corporate India’s Free Float.

1. FII’s have generally been bullish and stable

• Out of the 304 months that FII’s have been investing, 235 months, or more than 3 out of 4 months, have seen a positive Inflow into the country showing that in general FII’s have been positive on India. Not only that it seems to be a stable and long-term source of money for the Indian markets. The chart below shows their Net Investment into India every year since the beginning. The biggest outflow was during the Global Financial Crisis.

2. 9.2 trillion invested is worth Rs. 28.9 trillion

• While there are many different Fund Management companies behind these FIIs, as mentioned above, I will do this analysis as if there was just one Fund. Also, the analysis is based on the shareholding data till March 2018.
• While FII’s have put in a total of Rs. 9.3 trillion, as of May 2018, it is worth Rs. 28.9 trillion as of May 2018. Based on the net inflow every year, the IRR of FII Investment from Jan 1993 till May 2018 has been 13.1%. While I have simplified the analysis by assuming that the Net Investment was made at the end of every year the number will be pretty close to the actual.
• If the same amount was put into the BSE Sensex, the return would have been 11.4%. In effect FII’s have beaten the market by around 1.7% every year.

3. FII’s have focused on Large Caps companies

• Close to 86% of the Total FII portfolio is in Large Cap Stocks. Mid Cap account for 10.8%, Small cap 3% and Micro Cap is close to Zero at 0.2%
• If one were to look at Mega Cap (market cap above Rs. 60,000 cr.) companies, 69% of the FII portfolio is in the Mega Cap companies. This accounts for 44.5% of the free float of Mega Cap companies.
• FII’s have some stake in more than 1400 companies, although in many cases it is miniscule. This is surprising given that most FII’s do not have presence locally and they end up focusing more on macro and thematic factors when they invest. Also, those FII’s that do bottom up research end of looking mostly at the larger companies.

4. FII’s are playing the India story through the Finance Sector

• Out of their total portfolio value, 36.9% is currently in the Finance Sector.
• Further looking at the Subsectors, FII’s have 30.3% of their portfolio in Private Sector Banks and Housing Finance.
• Only 1% of their Holding is in PSU Banks
• 6% of FII Portfolio is in the two HDFC companies
• Kotak, ICICI, Axis, Indusind Bank and Yes Bank are the other five large holdings in the Finance sector

5. IT Services sector is their other favourite

• 11% of the FII Portfolio is in IT Services companies. This is theie second largest sector holding.
• In this Sector TCS and Infosys are the two large holdings

6. FII’s are neutral to underweight most of the other Sectors

• • Most Funds are benchmarked to some fund or the other. Nifty 500 is a good benchmark to compare the FII portfolio. The table below shows FII portfolio weight versus the Nifty 500 Weights for the top sectors as of May 15,2018.

• The biggest underweight sectors for FII’s are Capital Goods, Cigarettes and Pharma
• We talked about Finance and IT, Two Wheeler is another sector FII’s are overweight. In the Two-Wheeler sector Hero Motocorp is their largest bet
• Most other sectors FII’s are neutral to underweight

Another way to look at the data

Most of the above analysis was done on the basis of absolute holdings of FII’s in any company. Naturally smaller a company smaller the absolute holding. To some extent the comparison with Nifty 500 mitigated that problem.  One other way to look at this would be the stocks where FII holding is disproportionately high. As shown by the three tables below

• The large cap lists mirrors their sector preference as all the five companies are in Finance sector.
• The midcap and the small cap list are much more diverse and represent more bottom up picks rather than any sector preferences.

Given that FII’s are very dominant in the Large Cap companies it is also instructive to see where FII’s have very low holding.

• In general, FII’s holding in Public Sector companies is low. The list above is also indicative of the same.
• It is interesting to keep an eye on the FII Investment for any company. This can easily be done on our site.

Why does all this matter?

As I had mentioned in my last piece, when we Invest in any market, it helps to find who the other “players” are and what their behaviour is as we do not invest in isolation and how the markets behave depends on the collective behaviour of each player. We also found out that FII’s are the most dominant players.

It is very important for the Buy & Hold Investors to know that Global issues will impact Indian markets due to the presence of the FII’s. For example, the Global Financial Crisis saw the biggest FII outflow that we have seen in since the FII’s entered in 1993. As long as global factors do not impact the long term fundamentals of your stock any such volatility should either be used to buy more or stay put.

For Active investors, it is important to track the global markets as they could have an impact through FII activity. In general, stocks which have large FII holding tend to become more vulnerable during times of Global turbulence.

You can check the FII holdings of any stock on our site here