Insights: What mutual funds, FIIs are betting on, and avoiding in this market

Moneycontrol analysed June 2024 shareholding data to see where foreign institutional investors (FIIs) and domestic mutual funds are underweight/overweight.

Stock prices are slaves to earnings, but in the short to medium term, they are driven by the demand and supply of stocks. Knowing where the big players are positioned helps predict potential buying and selling pressure pockets. Moneycontrol analysed June 2024 shareholding data to see where foreign institutional investors (FIIs) and domestic mutual funds are underweight/overweight. Here are the key insights:

Global risks? No, thanks

With US recession fears and geopolitical jitters, institutional investors are steering clear of globally vulnerable sectors. Energy, metals, and IT services are underweight for both local and foreign institutions.

Betting big on domestic cyclicals

Both domestic and foreign investors are going all-in on domestic cyclicals like consumer discretionary, industrials, communication services, real estate, and materials.

Banks: A tale of two extremes

Banks are a split decision between foreign and domestic investors. Foreigners are overweight, not necessarily due to bullishness but because of high benchmark weights post-HDFC merger. Domestics are slightly underweight, avoiding overweight due to the already high benchmark weight of banks in the benchmark index.

Autos and auto-ancilliaries: the great divide

Locals have been bullish on autos and auto ancillaries, riding on demand surge, while foreigners have been underweight due to ESG concerns, avoiding IC engine makers.

Consumer staples: not growth, not defensive

Despite rising risk in the market, consumer staples, often seen as defensives, are out of favour. Both foreign and domestic investors see them as overpriced with tepid growth, making them an underweight position. Even utilities are neutral for foreign investors and slightly underweight for locals.

Industrial confidence soars locally

Domestic investors are bullish on industrials, confident in investment-led growth despite high valuations. Gains due to operating leverage in some companies could lead to disproportionate growth in earnings, justifying current valuations, they believe.

Healthcare for all seasons

Healthcare is a motley bunch of stocks with plays on US generics and domestic markets, plus hospital and diagnostic companies. Valuations are reasonable given growth prospects.

The big structural bet

Both local and foreign institutions are overweight on consumer discretionaries (non-autos). It's a long-term bet on India's growth story, expecting a steady rise in discretionary spending on the back of penetration growth, and optimism around demand pick-up post-Covid slump.

Cement’s irony

Cement, a key local commodity, is underweight for foreign institutions and only marginally overweight for domestic ones. Growth is not a constraint. More capacities could eat into profits, and valuations are hailed as unsustainable.

Foreigners love real estate

While domestic investors are cautious about real estate post-2008 crash and management issues, unwilling to bet in a big way, foreign investors are more bullish on the sector.