Published on 21/09/2020 10:38:43 AM | Source: ICICI Securities Ltd

India Strategy - Institutions absorb primary market supply while small-midcap activity surge By ICICI Securities

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Institutions absorb primary market supply while small-midcap activity surge

FPI’s deployed a relatively high US$6bn in Aug’20 into Indian stocks but the higher proportion of the flows went into absorbing primary issuances. Compared to other EMs, which witnessed FPI outflows, India outperformed in terms of inflows. DIIs too had positive flows towards primary issuances although the secondary flows continued to be negative (Outflows of US$1.5bn).

Institutional flows into Mid-caps rose while declining into Large-caps in Aug’20: MF flows into mid cap stocks improved further in Aug’20 while outflows were largely seen from Large caps and marginal selling in small caps. Although monthly stock level flows from FPIs is not available, overall volume traded in mid and small caps within the NSE500 index (investible universe for Institutions), has continued to rise from June onwards. Significant outperformance of small (+9%) and midcaps (+ 5%) over NIFTY50 in August is continuing into September (+6% and +3% respectively) especially post the SEBI circular on Multi Cap funds (refer note dated 12th Sep’20) which cannot be ignored by Institutional investors.

Outlook: As articulated in our earlier note (dated 24th Aug’20), small and midcap category could attract institutional flows in an environment of; (a) continued global liquidity post the new ‘flexible inflation targeting’ framework of the US FED, (b) valuation discount (although reducing) post the significant underperformance of small and midcaps to large caps since Jan’18 and (c) regulatory push wherein the latest circular by SEBI mandates the largest category of equity schemes offered by MFs to hold minimum 25% of AUM in each of the mid and small cap stocks category.


What happened in Aug’20:

* FPIs were buyers across sectors, except for selling in consumer staples (Rs8bn) and telecom (Rs1bn). Top bought sectors were Banks (Rs92bn), Consumer discretionary (Rs21bn), and Auto (13bn). Pharma (Rs13bn). More details on slide 9 of the report.

* As a percentage of prior FPI AUM in the sector, largest buying was seen in Media (3.3%), Consumer discretionary (2.3%), Metals (2.2%), Airlines and retail (2%). Selling in consumer staples and telecom amounted to 0.4% and 0.2% of prior holding.

* Sector churn was visible in MF portfolios, while they were marginal net buyers (Rs5bn). Top bought sectors by MFs were Private banks, IT (Rs28bn each), other financials (Rs24bn) and Telecom (Rs10bn). MFs top sold sectors were energy (Rs18bn), consumer staples and discretionary (Rs14bn each), Metals (Rs14bn) and auto (Rs11bn). More details on slide 11 of the report.


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