life in financial markets: mauritius-based investors in listed indian stocks

A few days back I wrote an analytical story on large equity stakeholdings by Mauritius-based investors in listed Indian companies on the National Stock Exchange of India. 


Here is what I wrote:

Mauritian investors' influence goes up a tad

Public shareholders with a Mauritius tag in their names held Rs 70,000 crore worth of large stakes in listed companies

The Mauritian influence in the listed Indian equity market improved marginally in the December 2011 quarter as compared with the previous quarter. This was bought out in a FC Research Bureau analysis of shareholding of more than one per cent in listed companies by public shareholders which had the word 'Mauritius' in their names. These shareholders included foreign institutional investors (FIIs) (including FII sub-accounts), foreign venture capital investors and foreign investors investing through the foreign direct investment (FDI) route.

The collective holdings at the end of December 2011 of 86 such public shareholders in 255 companies was, at January 25 prices, worth Rs 70,114 crore, which was four per cent more than 67,542 crore worth of September 2011-end holdings of 83 similar Mauritius-based public shareholders valued at January 25 prices.

The largest Mauritian investor in Indian equities at December 2011-end holdings was Citigroup's two investment subsidiaries' collective holding in just one company, Housing Development Finance Corporation (HDFC). Citigroup Strategic Holdings Mauritius, with a 8.78 per cent stake, and Citigroup Holding Mauritius, with a 1.07 per cent stake, together held 9.85 per cent stake in HDFC which, at its January 25 closing price, was worth 10,302 crore. This duo was also the largest Mauritian-based investor based on their September 2011-end holding which was the same, at 9.85 per cent stake.

The second-largest Mauritian investor was Aberdeen Asset Managers whose two FII sub-accounts, Aberdeen Global Indian Equity Fund Mauritius and Aberdeen International India Opportunities Fund (Mauritius) collectively, increased their investment exposure to Rs 9,257 crore based on December-end holdings across 14 companies from Rs 8,069 crore based on September-end holdings across 12 companies mainly due to new greater-than-one-per-cent holdings in Mphasis and Pirmal Healthcare. Valiant Mauritius Partners, another Mauritian investor, increased its holdings to 14 companies valuing Rs 1,146 crore from holdings in 11 companies valuing Rs 819 crore.

The ones who reduced their exposure included Morgan Stanley Mauritius Company whose greater-than-one-per-cent holdings fell to Rs 1,275 crore across 28 companies. Deutsche Securities Mauritius' large holdings also fell to Rs 1,333 crore across 23 companies from Rs 1,797 crore across 25 companies.

The Mauritian investors which had diversified holdings in 10 or more stocks as of the end of December included Citigroup Global Markets Mauritius (10th largest Mauritian investor in terms of holding value) with large stakes in 41 listed companies, Copthall Mauritius Investment (6th largest) with 28 companies' stakes, FID Funds (Mauritius) (8th largest) with 26 companies' stakes and HSBC Global Investment Funds Mauritius (3rd largest) with 23 companies' stakes.

TMI Mauritius and P5 Asia Investments Mauritius were the 5th, and 7th, largest Mauritian-investors respectively but both of them had a large stake in only company, Idea Cellular.

The value of the large holdings by 10 largest Mauritian investors accounted for 73 per cent of that of by all Mauritian investors. Immediately following the top 10 Mauritian investors were Deutsche Securities Mauritius, Morgan Stanley Mauritius and Valiant Mauritius Partners.

Large stakeholdings by Mauritian investors
These 10 investors made up for 74 per cent of all Mauritian investors
	Value of holdings (Rs cr)		No. of cos. invested in
Citigroup Holding Mauritius *	10302		1
Aberdeen Asset Managers**	9257		14
HSBC Global Investment Funds Mauritius ***	8049		23
HSBC Bank Mauritius****	6334		18
TMI Mauritius	4371		1
Copthall Mauritius Investment	3684		28
P5 Asia Investments Mauritius	3104		1
FID Funds (Mauritius)*****	2242		26
CLSA (Mauritius)	2112		22
Citigroup Global Markets Mauritius	1949		41
Holdings are as of 31 Dec 2011 but valued at Jan 25 prices
* Citigroup Strategic Holdings Mauritius & Citigroup Holding Mauritius
** through FII sub-accounts Aberdeen Global Indian Equity Fund Mauritius & Aberdeen International India Opportunities Fund (Mauritius) for which it is main FII
*** FII sub-account to main FII HSBC Global Investment Funds
**** through various FII sub-accounts for which it acts as main FII
***** FII sub-account to main FII FIL Investment Management (Hong Kong) of the Fidelity Group
Source: Capitaline Neo. Analysed by FC Research Bureau

life in financial markets: mini-bubble bursts, at least for the time being

I wrote about the mini-crash in stock markets worldwide last week. Here goes:

Mini-bubble bursts, at least for the time being

It is becoming a quarterly feature. Global equity markets had crashed between 5% and 10% in the second half of October 2009. The second half of this month has seen the exact same story. The BSE Sensex and Hong Kong's Hang Seng index were the worst hit with a crash of a little over 7% in a week (see graph below, click on the image to see it enlarged & clear).

A jittery Chinese central bank, uncertain stimulus packages and un-inspiring corporate fundamentals were the major driving factors. But an actual liquidity shake-up was the turning point that made the markets fall continuously for about six trading sessions. "Emerging economies like India had attracted significant foreign equity flows in 2009 and reversal of a part of these flows have likely contributed to some correction in the Indian markets." says Dipen Shah, senior VP-private client group research at Kotak Securities.

The first half of January saw staggering net foreign institutional investor (FII) inflows, collectively on the NSE and the BSE, of Rs 3,042 crore on a single day on 11 January, and an aggregate net inflow of Rs 5,447 crore for the month till 11 January. The tide turned dramatically thereafter and the next 11 trading sessions saw Rs 8,855 crore worth of net outflows. The domestic institutional investors picked up Rs 6,509 crore worth of these outflows but the Sensex still tanked by about 7% in a week as of 27 January.

High global liquidity had sustained the equity markets for over two months till mid-January. There were warnings in November last year that 'dollar carry trade' was causing the liquidity overflow and may not sustain for long. Donald Tsang, chief Executive of the Hong Kong Special Administrative Region of the People's Republic of China, had stated in November last year that the US Federal Reserve’s policy of maintaining near-zero interest rates near zero was leading to excessive speculative capital which could cause the next global crisis.

Warning of the dangers of 'dollar carry trade' Nouriel Roubini, professor at New York University’s Stern School of Business, in a column in London's Financial Times, wrote that "traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade."

Many Indian market participants, however, rubbish the speculation that fears of an unwinding of 'dollar carry trade' due to a strengthening dollar (against other currencies) will lead to further liquidity outflows from global markets. "The equity markets run their own temperatures and had perhaps come too far too fast," says Jamal Mecklai, head of Mecklai Financial, a forex consultancy firm. But, cautions Saurabh Mukherjea, head of India equities at Noble Group, a global equity research firm, "Yes, money will flow out from global equity markets if the US Fed chairman, Bernanke, were to really say that this it the end of low interest rates in the US."

Domestic corporate fundamentals have been neutral. An Enam Securities research, dated 20 January, revealed that out of 41 top companies that had disclosed their quarterly figures for December 2009 about 15 companies saw a decline in net profits as well as net sales. The remaining saw a lukewarm growth.

"Even around the world there were high-profile corporate cases of earnings disappointment and valuations had come to a juncture where earnings had to grow a lot to sustain the high stock prices," says Mukherjea.

Global markets, including India, had recovered on Thursday, 28 January, but the next few weeks will see subdued levels and choppy conditions.

life in financial markets: fundamentals versus market prices

The financial system was in a deep crisis in 2008 and using taxpayers' money governments (including Indian government) rushed to bail out the banks and other investment firms either directly or indirectly. As a result, liquidity in the global financial system was very high in 2009 and that led to a 60-100% rise in equity prices worldwide.

I think the bailouts were un-necessary and will only encourage reckless leveraging and mis-behaviour among the large market participants.

Anyway, late last month (December 2009) I contributed a news analysis story on the Indian listed companies' fundamentals not keeping pace with the sharp rise in market prices. Last week has seen much-needed correction in stock prices but it is still not enough.

Here goes:

Will India Inc. chase the market rabbit?

Barring the scary late-October crash, the last three months has seen the stock market on an automatic gear driving the steady flow of foreign institutional investor (FII) investments. But the second half of this month (i am referring to January as readers would be reading our new issue not before 1/2 Jan) will see fundamentals come in to the limelight once again as the listed companies' financial results for the December 2008-ended quarter start pouring.

Valuation of stocks by FIIs and domestic institutional investors have risen sharply and sustained ever since net profits and earnings per share rose sharply in the last quarter of the 2008-09 financial year.

The Price to Earnings ratio of the 50-stock S&P CNX Nifty index shot up by 40% during April-June this year after the previous quarter's (January-March 2009) Nifty stocks' aggregate EPS grew by a healthy 7.8% over the October-December 2008 quarter (see table) and aggregate net profit grew by a hefty 28% in the same period.

(click on the image to see it enlarged & clear)

The first two quarters of the current financial year (2009-10) have bought out the difficulties India Inc is having in sustaining high growth in profits as they stuttered. Yet the Nifty P/E has continued crossing 23 on Christmas eve. In the last five years (see graph below) it had peaked at 27.9 on 11 January 2008 before the big crash of that year. Global liquidity has prevented prices from falling but it has also meant that valuations have got stretched.

"What we believe is that that most of the consensus earnings upgrade forecasts for next 2 years is based on looking at sharp revival of growth in second half of the current financial year and that is why the December 2009 quarter figures will be watched very closely," says Gaurav Dua, head of research at Sharekhan. Dua is clear that these results will not only have to meet Dalal Street's expecatations but also be much ahead.

(click on the image to see it enlarged & clear)

That the Indian equity market, like a few other emerging markets in Asia, has always been considered expensive have never deterred FIIs. "Global investors focus more on their confidence back home in their western economies and if that is good they come to emerging markets notwithstanding high P/E ratios," says Saurabh Mukherjea, Bombay-based head of India equities at Noble Group.

But if corporate earnings falter, or do not meet street expecation, then any liquidity-driven sustained rise in prices will lead to the Nifty P/E touching stratospheric leves of 25 and above. In its October 2009 India Strategy report, Enam Securities had looked at what can happen next and indicated that the Indian market would see a sharp upward spike "if global liquidity continues to seek strong domestic growth and 'thematic investing' starts overlooking valuations."

The suspense will be over once the Q3 results start coming in.