Wednesday, February 9, 2011

Number crunching time

Statistics are like mini skirts. What they reveal is interesting but what they conceal is vital. A funny one liner but so true when we talk about market statistics. I have done some number crunching. Presented this on CNBC-TV18 today and as promised, here is the blog entry.

First up, the Nifty is down 822 points or 13.3% since December 31. Now why is that date important? That's because the FII (foreign institutional investors) data is released at the end of every quarter and we have absolute numbers to talk about.

During this period, FIIs have net sold Rs 10,131 cr in Indian equity markets, which is $2.25 bn and change. Now, the question that has pained a lot of people is that are the Indian markets so shallow that $2.25 bn pullout leads to 15% correction? What would happen if the FIIs withdraw another $2.25 bn? Would we fall another 15-20%?

Well, the answer lies in some internals. Let's put this 822 point fall in perspective. Nifty 50 as the name suggests is a basket of 50 stocks and 8 of these 52 stocks have led to 56% contribution to the decline. In fact 71% of decline can be attributed to 15 stocks. Presenting the list below.


Stock Contribution

L&T -94

RIL -83

HDFC -69

ICICI Bank -56

ITC -48

Infosys -46

HDFC Bank -32

ONGC -32

Now comes the second internal. In one of my previous posts, I had pointed out at the importance of GROSS numbers from FIIs and not just the net number. And here are those numbers. Gross buy worth Rs 74,343 cr and gross sell worth Rs 84,475 cr. Now this gross sell number is in excess of $19 bn. So clearly the selling has been intensive in individual stocks. Its getting masked by gross buying, which could be in non-index stocks or may be under-owned Index stocks.

And the final piece in puzzle now - take a look at the FII holding and the value of that holding in the top 11 Nifty stocks. Any guess how much it's worth? It's Rs 3.65 lakh crore or $81 bn. Staggering isn't it? Presenting the data below.


Stock FII Holding (Rs cr)

Infosys 64,908

RIL 53,573

HDFC 51,222

ICICI Bank 44,278

TCS 28,331

HDFC Bank 27,811

SBI 22,596

Bharti 21,939

Axis Bank 18416

ITC 17042

L&T 15566

As you would see, there is an overlap of many stocks in both these lists. My sense is that while there has been FII selling in some of the large cap stocks, the buying has happened in stocks which don't matter, or at least can't push up the Nifty. For example, an HCL Tech which has just 0.6% weight in Nifty but a stock which has actually risen in this carnage. Or even Power Grid for that matter.

Conclusion: I really wish we had the FII data on a monthly/fortnightly basis. That would surely solve this puzzle thoroughly. Now we have to wait for March end numbers and this quarter is not half way through yet.

Coming up in some time: A similar analysis on some of the midcap stocks which have seen big fall and their FII holdings.


  1. This comment has been removed by the author.

  2. Hi Anuj,

    An interesting analysis indeed. It would be worthwhile to know which stocks the FII’s are buying into considering that the net sell figure of $2.25 billion does not warrant this kind of a steep nifty correction. So clearly short nifty seems to be the theme and consequently the nifty heavyweights are getting pounded. Can it be thus assumed that the selling pressures are coming mostly from the ETF’s (the so called hot money), which will trade the nifty only (and consequently a large chunk of their holdings will be in the heavyweights). This is also something that most of the channels are anyway talking of. On the other hand the buying could be coming from the long only funds / funds with a firm belief in the India story. These FII’s (who necessarily do not deal in nifty only but on strong growth stories outside the index) could be cherry picking across the board (index and non-index stocks) where valuations would be looking very attractive. If this is true, is it time to start cherry picking from a medium term perspective for a retail investor since the second category of FII’s are actually the smart money. Looking forward to your perspectives on the same.

  3. Outstanding analysis !! Much to learn from you...Thanks and keep those coming..

  4. amazing analysis.....cant wait for march numbers....

  5. can u give an analysis of quater of sep 2010 and dec 2010 the change in FII holding as the market rose in that period...

  6. IVRCL INFRA'S last available Shareholding pattern on NSE's site is of sep 2010 - FII's hold a substantial 58% in the company, may be thts the reason the stock has been beaten completely out of shape, do u hv any idea of FII holding as on dec 2010

  7. @ Sumit - Yes, we have started to see some buying by long only funds in some of the large caps. Will write in details in a bit

    @Dandy: Thanks dada. Your appreciation means a lot to me

    @Virender: Thanks. But Match numbers a long time off

    @Formula 1: Good point, will do the research and post

    @Pallav: IVRCL's Dec shareholding out on BSE. Can check there

  8. Hey Anuj,

    I think Indian markets are extremely shallow compared to the flows we have started receiving. Our cash market volumes are pathetic, which makes them vulnerable. For example, 1000 shares on both Indian exchanges trade less than what Apple trades in one day in cash market!

    We have progressed well on the regulatory aspect of markets, but it is high time our regulators think of providing more depth to the markets. This can be achieved by encouraging market makers and providing rupee credit to brokers for enhancing liquidity in the market through order book management. Introduction of smart order routing is one such step taken which would open doors for algorithm trading systems, but they could lead to frequent flash crashes if these is low liquidity in stocks.

  9. Hi Anuj, Amazing Analysis. Waiting for the Midcap version. One question here, Will any kind of Tobin tax help prevent this kind of sheer dependence on FII for market direction and valuations