According to the report, the biggest selling by FPIs in this quarter was in technology. (Photo by Tung Lam/Pexels)
Financials, domestic cyclicals (consumer and industrials) and technology are the contrarian sector calls that
Morgan Stanley has taken at the end of the second quarter of 2022.
“Domestic share owners are price setters in India and bought financials, consumer discretionary and industrials in the trailing quarter – our top three sector recommendations,” the India Equity Strategy report by Morgan Stanley equity strategist Ridham Desai said. However, it noted that position sizes were narrower than warranted.
Morgan Stanley said active positions have gone up and need to rise further.
“Average sector positions went higher in the latest quarter led by domestic institutions albeit FPIs continue to run more active portfolios. We opine that we are in a macro-driven market, implying that sector positions should be wider than normal as we have been doing since 1Q2022,” the writers said in the report dated July 26.
Contrarian calls
The sectors picked by MS are contrarian calls because foreign portfolio investors (FPIs) are underweight on two of them and domestic institutional investors (DIIs) are underweight on one and aren’t overweight on two.
Both FPIs and DIIs are aligned with Morgan Stanley’s call in one segment each.
According to the report, the biggest selling by FPIs was in technology. FPIs are also underweight on consumer discretionary and industrials. Where the Morgan Stanley research team and FPIs align are on financials.
“FPIs are overweight on financials and lifted the relative position by 40 bps during the quarter after taking it down for five consecutive quarters. The position is still 540 bps below the peak of September 19,” they said in the report.
DIIs added technology but they remain underweight in the sector. They also added financials and consumer discretionary, but the institutions aren’t overweight on both.
The only sector they are in sync with Morgan Stanley is industrials, where the latter recently increased its weight.
Domestic holding rises
One of the biggest stories of the previous financial year was how domestic investors held up the markets when foreign investors withdrew.
Now, a decadal barrier has been crossed, MS said. Domestic investors hold a bigger share of India’s largest 75 companies than foreign investors for the first time since 2010. Domestic investors held 25.6 percent in these companies while FPIs had 24.8 percent.
“The combined holdings of domestic mutual funds and direct households in stocks have risen over 720 bps since 2015 whereas those of foreign portfolio investors have declined about 230 bps. The last quarter alone saw a near 90 bps rise in domestic ownership while FPI ownership of our sample of 75 companies fell 84 bps QoQ,” MS said in the report.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
