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FIIs invest nearly 12.5% of total equity inflows in Reliance Industries in June quarter

In the past four quarters, foreign funds have increased their holding by 2.56 percentage points, of which 1.3 percentage points came in the June quarter alone.

, ET Bureau|
Updated: Aug 25, 2014, 10.51 AM IST
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In the past four quarters, foreign funds have increased their holding by 2.56 percentage points, of which 1.3 percentage points came in the June quarter alone. 
In the past four quarters, foreign funds have increased their holding by 2.56 percentage points, of which 1.3 percentage points came in the June quarter alone. 
MUMBAI: Foreign fund managers are progressively turning positive on Reliance Industries (RIL). In the June quarter, on an absolute basis, the company was the biggest recipient of foreign institutional investor (FII) inflows. FIIs have deployed nearly $1 billion in the oil and gas segment, of which approximately $730 million has been invested in RIL, and the rest in stocks such as ONGC and GAIL India. This means FIIs have invested nearly 12.5% of their total equity inflows during the June quarter in RIL, India’s largest private sector company by profit.

By the end of the June quarter, FIIs were holding a stake of nearly 19.91% stake in RIL.

In the past four quarters, foreign funds have increased their holding by 2.56 percentage points, of which 1.3 percentage points came in the June quarter alone. This is the biggest gain in a single quarter since March 2009. To be sure, FIIs are still underweight on RIL by 1.6% on a portfolio basis compared with the BSE 200 weightage. The change in foreign fund managers’ stance on RIL can be attributed to three factors. The first is the so-called creeping fear, or the concern over the portfolio under-performing in the context of the multiple earnings triggers for the stock, going ahead.

Inclusive of global depositary receipts (GDRs), FII holding in the company stands at 23.3%. Besides the 1.6% gap cited above, foreign funds are also 130 basis points underweight based on the 7.5% weightage that RIL has on the MSCI India index.

“The biggest fear among the foreign fund managers is that their funds could terribly under-perform if they continue with their underweight stance on RIL stock. After the formation of the new government, RIL is having multiple positive triggers, which has resulted in the elevation of the risk fear,” said UR Bhat, managing director, Dalton Capital Advisors.

Saagar Bajaj, associate vice-president of alternate research at Nirmal Bang Institutional Research, said this “is more of a tactical shift among foreign funds in order to rebalance their portfolio, as they have been considerably underweight on the stock. In order to minimise their risk of underperformance as compared with the benchmark index, they are now turning their portfolio closer to equal weight.”

The second reason for raising stakes in RIL is FIIs’ underweight stance on the Indian energy sector — about 2% in the June quarter alone, although this rose 53 basis points to 8.5% in June from 7.9% in March.

The third reason is that the stock has been pushed by a lot of MNC brokerages which points to a potential doubling of returns over the next three years.

“RIL is in the middle of a large Rs 1.8 trillion ($30 billion) investment cycle, which should continue over next two years,” CLSA said in a June 18 report. “This clearly hints at the potential of Reliance’s US$ ebitda doubling over the next three years, after falling for nearly three years. We believe that this may also drive the doubling up of the stock price during this period.”

FIIs invest nearly 12.5% of total equity inflows in Reliance Industries in June quarter

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