As US Fed talks taper, these FPI favourite stocks could be at risk

NEW DELHI: As talks of tapering of US stimulus gain ground, a host of FPI favourite stocks could be in for selling pressure, as risk-off trade sets in.

There are 29 BSE500 companies where foreign portfolio investors own at least 33 per cent or a third of the stake. They included HDFC where FPI ownership stood at 72.22 per cent at the end of June quarter. Shriram Transport, Zee Entertainment, Apollo Hospitals, Axis Bank and IndusInd Bank are some stocks where FPI ownership is in excess of 50 per cent.

ICICI Bank, Kotak Mahindra Bank, PVR, Jubilant FoodWorks, Redington India, Crompton Greaves Consumer, Mahindra & Mahindra, Info Edge, HDFC Bank, and Cyient are some other FPI-heavy stocks.

FPIs trimmed stake in 16 of the 29 stocks in June quarter. Sixteen of these stocks have also underperformed BSE500's 22 per cent returns year-to-date.

"History suggests whenever the Fed talks about tapering, markets see a knee-jerk reaction for a day or two. But we need to see FPI flows for at least a week. Some of FPI favourites may take a hit in the extreme short term. One should utilise such opportunities to enter these quality largecap names. Remember, FPIs were net sellers in July and yet the domestic market stayed afloat. We have not seen a decent correction for some time. There could be one," said Santosh Meena, Head of Research at Swastika Investmart.

In July, FPIs were net sellers of domestic equities to the tune of Rs 11,308 crore, even as some FPI buying (Rs 3,898 crore) emerged in August.

Siddharth Sedani, VP, Equity Advisory, Anand Rathi Shares & Stock Brokers said that the trigger talk of “tapering” generally makes investors nervous as it means the Fed will start reducing the $120 billion of bond buys it makes each month.

"With Fed minutes hinting at tapering this year, we may see a knee-jerk reaction in the market. But FPI reducing stakes can be considered as profit booking in sectors. We suggest investors maintain a bullish bias on the market. Any dip in the market will be an opportunity to accumulate. If any stock is available at attractive valuations with visibility of earnings growth, then one should accumulate good quality stocks," Sedani said.

India had been the only major emerging market to receive foreign inflows in 2020. In 2021 so far, it is second only to Brazil in the pecking order. But with the Fed minutes of July policy suggesting tapering this year, outflows from emerging markets may intensify on a stronger dollar. India may not be an exception.

Foreign portfolio investors held $595 billion worth of domestic equities as of June 30, of which major holdings were in financials (34.5 per cent), IT (14.3 per cent), and energy (13.6 per cent) sectors, a BofA Securities report suggests. Energy, financial services and consumer discretionary were some of the sectors they were bullish on. These institutions were underweight on materials and healthcare, the report suggested.

"We are pencilling in a September announcement, but it is clear that the Covid resurgence could delay it," said ING Bank in a note.

The bank noted that a lot has happened since the July 28 FOMC decision. The July employment report was very strong with payrolls adding more than a million jobs when revisions are included. "We have also seen more evidence casting doubt of the “transitory” view surrounding inflation with pipeline price pressures still building, corporate pricing power on the rise and inflation expectations looking decidedly less well-anchored at 2 per cent than the Fed continues to lead us to believe," it said.

UPL, Info Edge, TeamLease Services, Indian Energy Exchange, Tech Mahindra, Manappuram Finance and Bandhan Bank are some of the companies with over 35 per cent FPI holding.