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Dollar power tilts stock scales
- Foreign funds overshadow small investors in share ownership

Mumbai, Feb. 1: Beneath the raucous rally of last year lay a silent, but dramatic, power play — the retreat of small investors in stock ownership and the emergence of foreign funds as the largest holders of equity.

According to a study conducted by J. M. Morgan Stanley, foreign institutional investors (FIIs) snagged more shares in the top 50 Indian companies than retail investors last year. This buying binge cost them Rs 35,153 crore — the amount they shovelled into stock markets.

Small shareholders sold almost 6 per cent of their holdings in the companies picked for the study. The figure, a year-on-year tally (2002 and 2003), includes direct equity buys, and the stakes amassed by mutual funds.

As a result, their ownership in these companies is down to 18 per cent, excluding the stake held by Indian mutual funds, said J. M. Morgan Stanley. Foreign investors, reposing faith in India Inc, could have lapped up what the small investors sold, raising their stake by 2.6 per cent in 2003 to 19.3 per cent, the report says.

FII stake in top 10 firms rose more sharply, by 7.3 per cent to 35.2 per cent. These leave out strategic stakes of foreign partners in entities like ICICI Bank and HDFC.

“FIIs have taken a lead over retail investors as they entered the stock markets at the start of the bull rally, when prices were low,” ASK Raymond James fund manager Dhiraj Sachdev said.

However, their stakes can change in the future, said analysts. They might sell for profits, and the equations could revert in favour of the small investor.

Trends over the past few months, however, reveal that while FIIs tend to sell at higher levels, foreign pension funds are typically long-term investors. When J. F. Electra decided to sell its stake in Moser Baer recently, Warburg Pincus, another FII, picked up the shares.

Companies like Infosys and HDFC have sensed the appetite of foreign investors and allowed them to hold up to 74 per cent.

“Our markets are getting institutionalised,” Sachdev says. In Europe and the US, stock ownership is vested with mutual funds and pension funds. Institutions there lead ownership by a huge margin over individuals.

Observers reckon that FIIs are now looking at mid-caps. By next year, they could hold more equity in these firms than individuals.

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