A very interesting situation is developing in the Indian stock market at the moment. This is the first time in the last two decades that foreign institutional investors (FIIs) have reduced their stake in the top 10 largest companies of India to the lowest level. This share has gone down even since the Global Financial Crisis of 2008. According to market experts, this is a big opportunity to make money. At present, shares of big companies are much cheaper than their long-term average valuation. Let us understand what investment mathematics is being created for you due to this selling by foreign investors.
Drought of foreign investment in big stocks
If we look at the data of DSP Mutual Fund, the stake of foreign investors in the top 10 listed companies of India has come down to only 34 percent of their free-float market cap. Its direct impact is also visible on the size of the market. The share of these top 10 companies in the total market cap has also come down to 17 percent, which was at the highest level of 39 percent in December 2019. According to the data, foreign stake in Axis Bank has fallen from 68 percent in June 2014 to 44 percent in March 2026. Similarly, it has come down from 59 to 36 percent in Kotak Mahindra Bank, from 63 to 34 percent in TCS and from 44 to 38 percent in HDFC Bank. A decrease in foreign investment has also been recorded in Reliance and ICICI Bank.
Quality shares available at discount
It is believed that when a good thing is available cheap in the market, then it is the right time to buy it. At present, every company in Nifty Top 10 Equal Weight Index is trading below or equal to its average valuation of the last 10 years. For example, Infosys’s PE ratio is 13.5 times, while its 10-year average is 23.3 times. PE of TCS has also come down to 14 as compared to the historical average of 26.9. Big stocks like HDFC Bank and Bharti Airtel are also available at much cheaper than their average value. The special thing is that despite low prices, the return on equity (ROE) of 70 percent of these companies is more than the 10-year average. The ROE of TCS is 52 percent and that of Infosys is 32 percent, which shows their fundamental strength.
a move to stand out from the crowd
Even in the global market, the Indian market is currently emerging as a ‘contrarian bet’ (a bet to move away from the crowd). In the Emerging Markets Index, only India and China are available at a discount to their 10-year average PE, while Taiwan and South Korea have become quite expensive. DSP Mutual Fund strategist Sahil Kapoor believes that after the rupee improves and geopolitical tensions subside, foreign investors will once again return to these big stocks. Stock market veteran fund manager Prashant Jain also argues that large-cap stocks have suffered the most due to foreign selling. In such a situation, when the market trend changes, large-cap shares can perform better than small-cap ones, because the earnings of big companies are stable.
What should investors do now
Now the question is what should an investor do in this situation. George Thomas, Equity Fund Manager, Quantum AMC, advises that even though there may be market fluctuations in the short term, the value of a good business does not decrease in the long term. Investors should consider investing in installments (staggered allocation) to take advantage of these cheap valuations. At the same time, Axis Securities has cautioned about small and mid cap shares. He believes that valuations are quite high in smaller companies and there is less margin for error.
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