FIIs favour IT sector as ‘defensive’ bet

Foreign institutional investors have increased their exposure to IT stocks, as a defensive strategy. Depreciating rupee against the dollar also seems to have acted in favour of IT sector, which has major business interest in the US.

Over the last one year, foreign institutional investors (FII) have consistently increased their stake in major IT companies. However, promoters had marginally reduced their shareholding.

The Sensex has fallen about 1,400 points since June 2011. The rupee depreciated against the dollar to 55.32 at the end of June 2012 from 45.11 in June 2011.

In Tata Consultancy Services, the FII holdings have increased to 14.63 per cent as of June, 2012 from 12.80 per cent in June, 2011.

In the case of Infosys, the FII holdings have gone up to 37.89 per cent (June 2012) from 36.88 per cent as of June 2011.

IMPACT OF RUPEE

“The market sentiment has been weak over the last one year. As IT is a defensive sector, there has been much investment in it. The rupee depreciation has also caused institutions to increase their holdings,” said Mr Sailav Kaji, Director — Institutional Equities & Chief Strategist, Padmakshi Financial Services.

Mr Kaji also pointed out that the holdings of FIIs had also marginally gone up in other defensive sectors such as FMCG and pharmaceuticals.

In Hexaware Technologies, there was a marginal reduction in the promoters’ stake to 27.90 per cent (June 2012) from 28.23 per cent (June 2011).

TCS also saw its promoters reducing their stake marginally to 73.98 per cent from 74.08 per cent.

“Whenever the markets move side-ways or downwards, there is investment in the defensive sectors. There can be many reasons for the promoter holdings to go down. There could be some dilution towards ESOPs or a specific event which caused reduction,” said Mr Rikesh Parikh, Vice-President — Equities, Motilal Oswal Securities.

Mr Parikh said there have been instances of some promoters diluting the stake and donating the proceeds to charity, such as HCL technologies promoters, who sold 2.5 per cent of their stake and donated the money to charity.