TIP (Secondary Research): Europacific Growth Fund, the largest foreign portfolio investor (FPI) in India was born seven years before liberalisation ushered foreign investment into Indian equity markets. Today, it holds $131 billion in assets under management; 6.4 per cent of that is invested in Indian equities.

Prime Database recently carried out an exercise to identify the 10 largest FPIs in India — through an examination of 1,447 listed Indian companies’ disclosure of the names of their foreign investors to stock exchange — and it turned out these FPIs together held Rs 1.79 lakh crore in Indian equities.

FPIs hold a major chunk of the non-promoter stake in Indian companies but can be notoriously difficult to pin down. Unlike domestic mutual funds, there is no freely available ranking in terms of the size for foreign funds investing in India. Listed entities disclose the names of shareholders owning more than one per cent in them.

The biggest FPI in terms of disclosed shareholding (above one per cent) is the Europacific Growth Fund. Among others on the list of the 10 biggest are sovereign and pension funds from Singapore and Norway, some familiar names like Franklin Templeton Investment Funds, and Morgan Stanley Asia (Singapore), besides Dodge & Cox International Stock Fund, First State Asia-Pacific Leaders Fund, Aberdeen Global Indian Equity, the Oppenheimer Developing Markets Fund and Copthall Mauritius Investment. These FPIs together hold shares equivalent to half the equity assets of the entire Indian mutual fund sector.

While the actual number might be significantly higher, Prime’s analysis estimates Europacific’s holding in Indian equities at Rs 42,530 crore. An analysis of the fund’s own documents shows this could be around Rs 54,000 crore.

So, the top 10 FPIs’ actual holding could be significantly higher than the Rs 1.79 lakh crore disclosed to bourses. This also means the ranking should be considered indicative, since FPIs holding company shares through participatory notes (P-notes) and the cases where holdings are less than one per cent are not required to disclose their names to stock exchanges.

Europacific Growth Fund belongs to the US-based Capital Research and Management Company. For Europacific, India is the biggest emerging market destination and fourth-largest overall — after Japan, the UK and France — according to its disclosures at the end of June. As much as 87.5 per cent of its investments are outside the US.

The fund managers’ commentary in Europacific’s annual report released in March this year might explain why they allocated more money to India than China.

It noted India and China shared similar growth trends, including the rise of the middle-class. However, India’s demographics were better than China’s. The median age in India was 27, noted the report, while United Nations data showed the median age in China was around a decade higher.

Jonathan Knowles, the Singapore-based fund manager of the Europacific Growth Fund, believes the rising middle class in India would drive consumption, leading to a rise in credit penetration, explaining the fund’s preference for financial stocks, especially private-sector banking names. “These banks have been taking share from public banks in India year after year,” said Knowles.

Financial stocks are also high on the list of India’s second-largest FPI, the $38-billion Oppenheimer Developing Markets Fund. Led by Justin Leverenz, who has been overseeing the asset management since 2007, the fund invests 14.8 per cent of its total assets in India, second only to China, which received 19.4 per cent of its total investments as of June 2015.

HDFC Bank, ICICI Bank, and HDFC are among the popular investment names in these funds.
Pranav Haldea, Managing Director at Prime Database pointed out that the trend towards financials can be seen amongst all foreign investors.

“Amongst sectors, the maximum exposure as on 30th June, 2015 was in Banks (Rs. 3.44 lakh crore) followed by IT Software (Rs.2.59 lakh crore). The sector which has seen the maximum increase in FII holdings in the last one year was also the Banking sector (from Rs.2.83 lakh crore to Rs.3.44 lakh crore),” he said as part of an emailed statement.

The third largest fund is the Government of Singapore which invests about Rs 24,192 crore as of June 2015.
FPIs were net buyers by Rs.1.11 lakh crore in FY15. They have been net buyers by Rs.7927 crore so far this year, shows data from depositories. FPIs held a total of Rs.20.51 lakh crore in Indian equities at the end of June. FPIs with exposure of over one% in Indian equities constitute nearly one-fourth of all FPIs with investments worth Rs 4.69 lakh crore.