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The government's reform initiatives from September seem to have sparked a renewed interest in PSU stocks among foreign institutional investors(FIIs), who have been the biggest buyers of Indian equities for the last ten years.
Showing their confidence in PSUs, which conventionally have a good dividend payout history, FIIs have consistently increased their stake in 22 state-owned firms in the last four quarters. Overseas fund managers aggressively upped their holdings in state-owned oil and gas, banking and financial services, fertilisers and power companies.
FIIs have increased their combined ownership in these stocks from 3.72% to 6.11% over the last four quarters. After the policymakers got their act together to arrest the policy paralysis concerns of the investor community from September 2012, FIIs purchased $22 bn worth of Indian equities in the subsequent nine months ending June 2013.
Oil India saw the biggest quantum of share buying by FIIs, who upped their holding to 9.58% from a mere 1.49% in the quarter ended September 2012. In the June quarter alone, FIIs increased their stake in OIL by 1.93 percentage points. The stock has gained 12% in the June quarter against a 3% gain of benchmark index Sensex.
Oil & gas companies HPCL and Indraprastha Gas saw significant buying interest from foreign investors over the four quarters with the FII stakes moving up by 3.67 ppt and 2.91 ppt, respectively, in the two companies. NTPC(6.29%), NMDC (4.13), Syndicate Bank (3.02), Power Finance Corporation (2.31) and Tamil Nadu Newsprint (2.3) too saw an increase in FII holding.
AK Prabhakar, senior VP-equity research, Anand RathiFinancial Services, believes the reduced subsidy burden in the wake of frequent increase in the prices of diesel and gas have been a positive for the oil & gas sector.
An analysis of the shareholding data indicates that FIIs favoured smaller PSU banks than the bigger ones. Though top public sector banks saw a deterioration in their asset quality in the recent past, cheaper valuations have led to a buying interest in smaller banks. Many of these stocks are trading in the range of 0.49 to 0.59 price-to-book ratio, which is lower than the industry P/BV of 0.74.
As a result an increase in FII holding was observed in names like Syndicate Bank, Vijaya Bank and IDBI Bank since September 2012. "Cheaper valuations was the main reasons for increased FII stakes in smaller PSU banks", said Prabhakar.
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