After witnessing Record run in benchmark BSE SENSEX of 40% in the last 12 months, the index cooled a little bit on the back of profit tacking by FIIs. Basically, the over leveraged position got unwound after tepid results from the Indian corporates excluding the Private Banks pack which have grown YoY beating the benchmark. However, there is a Silver Lining, the return of Domestic / Retail Investor via Mutual Funds & Insurance products.
The Indian households allocation to direct equity is very modest. India’s insurance sector could well be the markets’ (flow) insurance: they were net positive investors over April-May (after 3 yrs of sustained and significant outflows), are witnessing a rising share of unit/market-linked premium inflows. It appears that Investors are playing for upsides, remain cyclically positioned.
FII’s own almost 23% of the top 500 cos, and over 28% of the narrower Sensex (30) companies. FIIs remain aggressively positioned (banks: +1552bps) in the hopes of rate cut by the RBI, they have trimmed a bit (incl. IT & pharma). DIIs are getting more aggressive and cyclical; MFs: +industrials & cons disc. and insurers: +energy & cons discretionary.
India’s high absolute & relative foreign ownership is perceived a key ownership risk. It is indeed, if the earnings don’t pick up substantially by Sept-2015 results season. But underway & potential domestic inflows could well be the markets’ insurance, and its upside. Citi sees India getting more hedged on flows, and along with the business & macro cycle ahead, remain positive with a 33,000 Dec 15, Sensex target.