>India Equity Strategy (JP MORGAN)

Color of Money - Tracking Institutional Ownership

• Bulls retain momentum. Most indicators of investor sentiment and activity remained positive over the last month. These include trading values and volumes, institutional activity and outstanding positions in the F&O segment. FIIs bought equities aggregating US$1.3 bn. Selling by insurance companies (US$157 mn), after 17 consecutive months as buyers, was a weak data point though. Also, inflows into both local mutual funds and insurance schemes remain weak.

• Insider activity. Insider activity picked up over the month, skewed towards the buy side.

Net buys: Jaiprakash Associates, Jindal Steel, GMR and M&M
Net sell: Kotak Mahindra Bank

• New Pension Scheme launched. The much awaited New Pension Scheme (NPS) was launched in early May by the government. The key objective of the scheme is to provide low cost, long-term savings options, for the large number of unorganized sector employees (90% of the workforce). The NPS should over a period of time help enhance the flow of domestic savings into the equity markets.

• Rates market – liquidity surge sustains. Liquidity in the overnight inter-bank market remains near all-time highs. Subsequent to the RBI cutting benchmark interest rates by 25 bps, the yield curve has shifted meaningfully south and steepened over the month. Improvement in liquidity and sentiment is also reflected in the sustained easing in commercial paper rates and the spread between corporate and government bonds.

• Special focus – Quarterly changes in Institutional ownership: Latest data released for the March 2009 quarter indicates that FIIs and insurance companies have been adopting a more aggressive portfolio stance and cutting back on defensive sectors. Local mutual funds, on the other hand, have been increasing their exposure to defensive sectors. We have been overweight Autos, Cement, Financials and IT services over the last two quarters and underweight telecoms and global cyclicals.

To see full report: EQUITY STRATEGY