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Market rumors may have attributed the recent session’s decline to foreign portfolio investors (FPIs) selling stakes to comply with new disclosure norms by the Securities and Exchange Board of India (Sebi), a money control Analysis shows that is not the whole story.
Of the top 10 losers on the BSE 200 list, three stocks (Zee Entertainment, IndusInd Bank and LTIMindtree) are part of corporate groups holding FPIs that are not exempt from making additional disclosures about beneficial owners.
Of the top 25 losers, eight are exposed to FPIs that have more than 50 per cent of their corpus invested in their respective corporate groups.
While there may have been some selling as the FPI trimmed its stake to comply with new regulations, analysts said the big drop in recent sessions was triggered by stock-specific negative news.
“The FPI liquidation amount in the last few days is significantly less than Sebi’s estimate of FPI AUM required to make additional disclosures. Accountants are also different. The most defeated ones have low FPI ownership,” Nirav Karkera said. , Head of research. Fisdom.
Also read: MC explains | What are Sebi FPI norms and how do they relate to the market crash?
Sebi initially estimated that the FPI holding amount that will have to comply with additional disclosure norms will be around Rs 2.46 lakh crore. However, Sebi sources said money control that the amount was a conservative estimate. The amount was now significantly lower despite a significant escalation in the overall market capitalization of the market, as more FPIs were removed based on additional exemption criteria.
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Deepak Jasani, head of retail research at HDFC Securities, said Sebi norms could be one of the triggers, but one must also keep in mind that FIIs were selling off in emerging markets (EM).
“FII’s overall view is to reduce exposure to emerging market equities, perhaps because they feel the markets are overvalued. India is also at the receiving end,” he said.
During the period from January 15 to January 23, the Nifty lost 4 per cent and the Nifty Midcap 100 lost 2.5 per cent. FIIs withdrew Rs 32,000 crore and DIIs bought stakes worth Rs 17,000 crore.
After a very strong rally and the Nifty climbing 22,000, the markets had moved into an overbought situation and needed an excuse to pull back a bit, said Gaurav Dua, senior vice president and head of capital market strategy at Sharekhan. money control.
“Volatility in global markets and post-results correction in some banking sector heavyweights appear to have provided the necessary trigger for the correction. The FPI norms-related reports appear to have only contributed to the weakness of the feelings,” Dua said.
Action Specific Triggers
Much of the market decline has been caused by negative news about specific stocks. Zee Entertainment Enterprises, for example, saw a 38 percent drop largely due to fallout from the Sony deal. Data compiled by Prime Database shows that only two FPIs own more than 50 per cent of their corpus in the Essel group, amounting to a total of Rs 63 crore. Zee’s total market capitalization loss during this period is more than Rs 7,000 crore.
In the case of HDFC, two FPIs have concentrated stakes (Aberdeen and Invesco) worth Rs 18,210 crore. Both are exempt from making further disclosures, according to Sebi. HDFC Bank has fallen nearly 15 percent after announcing its third-quarter results as the Street was disappointed with its margin performance.
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Oberoi Realty, which does not have a concentrated stake in FPI, has fallen 10 per cent in the past after its December quarter net profit plunged about 49 per cent from a year ago. On the other hand, Adani group companies that have the most concentrated FPI bets have fallen by 2-5 per cent.
For several stocks, no direct connection can be made between the concentrated holding of FPI and the recent sell-off. That said, the figures could be an underrepresentation of opaque structures as they include only FPIs with a stake above 1 percent. Data for this study was compiled by the Prime database, based on public disclosures.
What are the Sebi FPI norms and what are the deadlines?
Sebi wants additional disclosures from FPIs to prevent companies from manipulating rules on minimum public shareholding and also to prevent foreign entities from indirectly controlling Indian companies through a chain or network of shell companies.
Disclosures on beneficial ownership must be made by FPIs whose 50 per cent assets under management are invested in a single Indian corporate group, or FPIs that have invested more than Rs 25,000 crore in the Indian stock market.
Sources said on January 24 that there is no immediate deadline or limit for FPIs to liquidate their holdings.
Also Read: Sebi FPI Norms: Quantum less than projected, no immediate deadline for liquidation, sources say
FPIs that meet the enhanced disclosure criteria as of October 31, 2023 have time until the end of January to rebalance their holdings, if they wish. “If they continue to meet the criteria for enhanced disclosures beginning in late January, they will be required to make additional disclosures within 30 business days,” the sources said.
Even after that, if they don’t provide any details, they will have another six months to reduce their holdings.