Research Overview

For countries experiencing rapid growth, development of a healthy financial sector is critical. As the economy grows, and complexity increases, the financial sector needs to become more efficient at managing resources. In parallel, the eco-system surrounding the growth of the financial markets too need to grow and there needs to be the development of supplementary sources of investment capital.

A critical element of a well-developed financial sector is the contribution of its key components and human resources to the reforms and policy that underpin the development of the industry, by provide quality intermediation and insights to market participants. Growth cannot be lopsided and benefit a section of a society by keep the other at bay. Hence, understanding of the role of the financial sector has increased markedly, but research and insights continue to mount.

At NSE, we have identified three focus areas of research to aid the development of an efficient micro-system to continue on the path of growth and financial inclusion, we set as a roadmap of this journey we started in 1994.

RBI Monetary Policy Review: 25bps hike with a hawkish tone

The RBI’s Monetary Policy Committee (MPC) expectedly decided to hike the policy repo rate by another 25 bps to 6.5%, while maintaining focus on withdrawal of accommodation, both on a 4:2 majority. This has translated into a cumulative hike of 250bps on the repo rate since May’22. Dr Ashima Goyal and Prof. Varma voted against the rate hike action as well as the stance. Importantly, the MPC has reiterated the need for continued calibrated monetary policy action to ease pressures on core inflation and keep inflation expectations anchored, thereby keeping the room open for further rate hikes. While the inflation forecast for FY23 has been lowered to 6.5% from 6.7% earlier, primarily led by easing vegetable prices, persistence of core inflation at elevated levels has remained a matter of concern. For FY24, inflation is expected to remain well above the RBI’s 4% mid-point target, estimated at 5.3%, thanks to persistence of core inflationary pressures on continued pass-through of input costs, particularly in services, and high global uncertainty. Domestic economic activity, on the other hand, has remained resilient, with GDP growth for FY24 pegged at 6.4%, aided by strong capex push by the Government, and continued recovery in contact-intensive sectors and discretionary spending, partly offset by subdued external demand. 

Overall, while the MPCs decisions were in line with market expectations, the commentary was mildly hawkish. With an unchanged stance, optimistic outlook on growth and concerns over elevated core inflation trajectory, the MPC has signaled that its fight against inflation isn’t over yet, thereby diminishing hopes of a pause in the next policy. This also provides the MPC greater flexibility to act if inflation data surprises negatively or Fed continues to hike rates. That said, the sheer quantum of rate hikes delivered over the last 10 months warrants a wait-and-watch approach to monetary policy in the near-term, particularly in the light of weakening global demand and its repercussions on India’s growth trajectory.

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India Ownership Tracker December 2022

In this edition of our quarterly report “India Inc. Ownership Tracker”, we extend our analysis of ownership trends and patterns in NSE-listed companies to include the data available for the quarter ending December 2022. We note the following key takeaways from our analysis.

1. Government share (promoter and non-promoter) rose by a steep 111bps and 118bps QoQ to a 14-quarter high of 8.6% and 8.8% in the NSE listed universe and Nifty 500 companies respectively, partly reflecting the outperformance of Government-owned companies, particularly public-sector banks, during the quarter. Increase in Government share in the Nifty 50 companies was modest at 22bps to 5.5%.    
2. Total promoter share in the NSE-listed companies, Nifty 50 Index and Nifty 500 Index fell marginally on a QoQ basis to 51.4%, 42.7% and 50.9% respectively in the December quarter. This was primarily due to a steep drop in private promoter share—both Indian and foreign, partly offset by a spike in Government ownership during the quarter.
3. FII (Foreign Institutional Investor) ownership rose by 49bps, 32bps and 24bps QoQ in the Nifty 50, Nifty 500 and NSE-listed universe to 25.2, 19.8% and 18.9% respectively, marking the second increase in a row. This was in line with renewed risk-on environment during the second half of 2022, as strengthening global growth concerns and moderating inflation raised expectations of potential pivot by the US. FIIs turned buyers of Indian equities during this period, with net inflows of US$11.9bn in H2 2022.
4. DMFs (Domestic Mutual Funds) stake inched up for the seventh quarter in a row by 17bps, 16bps and 13bps QoQ to fresh all-time high of 9.5%, 8.4%, and 8.1% respectively in the Nifty 50, Nifty 500 and NSE listed companies respectively in the December quarter. This is primarily attributed to consistent buying by DMFs over the last several quarters, aided by strong retail participation through the SIP route. Average monthly SIP inflows in FY23 thus far have risen to Rs129bn from Rs104bn/Rs83bn in FY22/FY21.
5. Individual retail investors’ holding fell for the third quarter in a row, albeit marginally, by 5bps, 17bps and 9bps QoQ to a seven-quarter low of 9.2% and 8.1%, and a 10-quarter low of 8.5% in NSE listed universe, Nifty 50 and Nifty 500 Index respectively. This is corroborated with the moderation in direct retail investments into Indian equities during this period (Rs537bn in Apr’22-Feb’23 vs. Rs1.6trn in FY22).
6. FIIs broadly maintained their sector exposure in the quarter gone with an outsized OW bet on Financials with a sequentially higher exposure and cautious stance on India’s consumption as well as investment theme with an UW position on Consumer Staples, Consumer Discretionary and Industrials.
7. DMFs maintained OW stance on Financials and trimmed relative under-exposure to Consumer Staples and Utilities, at the expense of reduced OW position on Consumer Discretionary, Healthcare and Industrials.

Unlike FIIs, DMFs have not expanded their portfolio of stocks but have instead put fresh capital into existing holdings.

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