FII Reduce Holdings in Indian IT Firms During Q1

Introduction:

The Indian stock market has witnessed a remarkable surge in recent times, with foreign inflows playing a crucial role in driving this growth. However, the latest shareholding patterns reveal that foreign investors have reduced their stakes in major information technology (IT) companies during the June quarter. 

This development comes in the wake of Infosys' disappointing revenue growth guidance for FY24, which further impacted investor sentiment. Nevertheless, long-term prospects for the IT sector remain promising, driven by the continued global adoption of digital technologies.

Foreign Institutional Investors (FIIs) Decrease Holdings:

During the June quarter, foreign institutional investors (FIIs) sold IT stocks worth over Rs 9,000 crore, with Infosys and Tech Mahindra being the least favored stocks. Prior to Infosys' downward revision of its FY24 revenue growth guidance from 4-7% to 1-3.5%, FIIs had already reduced their stake in the company. 

According to shareholding pattern data for June, FIIs decreased their stake in Infosys by an additional 165 basis points, bringing it down to 33.44%. Similarly, FII holdings in Tech Mahindra reduced by 118 basis points, reaching 25.69%.
Notably, among the 10 Nifty IT stocks, Wipro, which had a share buyback in June, and HCL Technologies were the only two stocks that saw a slight increase in FII holding by 6-7 basis points. This indicates some variations in FII sentiment towards different IT companies.

Mutual Funds' Perspective:

In contrast to FIIs, mutual funds showed a more positive sentiment towards large-cap IT stocks. Despite the challenges faced by Infosys, mutual fund ownership increased from 18.28% to 18.63% at the end of the June quarter. 
Furthermore, domestic fund managers raised their stakes in TCS and LTIMindtree, showing confidence in the long-term growth potential of these companies.

However, not all large-cap IT stocks enjoyed increased support from mutual funds. Wipro witnessed a decline in mutual fund holdings from 2.79% to 2.39%, while HCL Technologies saw a decrease of 17 basis points, reaching 7.98%.
 

FIIs Offloading IT Stocks
 

Tier-II IT Stocks:

Moving beyond large-cap IT companies, mutual fund ownership in Tier-II IT stocks such as Coforge, LTTS, and Persistent Systems increased, despite foreign investors reducing their stakes in all of them. This indicates a divergence in the investment strategies of domestic and foreign institutional investors in this segment.
Long-term Growth Prospects:

While the short-term prospects for the IT sector may indicate further challenges due to market volatility and company-specific developments, the long-term growth outlook remains promising. The ongoing global adoption of digital technologies continues to drive demand for IT services, providing opportunities for companies to capitalize on emerging trends.

Conclusion:

The recent shareholding pattern data for the June quarter reflects the cautious approach of foreign institutional investors towards Indian IT companies, particularly in light of Infosys' disappointing revenue growth guidance. On the other hand, domestic mutual funds have shown more confidence in large-cap IT stocks. 

The IT sector's long-term growth prospects remain positive, fueled by the increasing adoption of digital technologies worldwide. As the market dynamics continue to evolve, investors are likely to carefully assess individual company performance and future potential before making investment decisions in the IT sector.