PSU banks attract strong FII, DII interest as promoters reduce exposure: Motilal Oswal

Synopsis

Public Sector Undertaking banks are now favourites. Foreign Institutional Investors and Domestic Institutional Investors are showing increased interest. FII stakes in PSU companies rose to 18.1% by March 2025. DII stakes also hit a high of 18.8%. FIIs reduced exposure in private companies. DII holdings in private companies increased. BFSI is a key sector for FIIs.

Public Sector Undertaking (PSU) banks have emerged as the favourites of both Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs), according to a report by domestic brokerage firm Motilal Oswal.

FIIs have significantly ramped up their stakes in PSU companies to 18.1% as of March 2025, marking a sharp rise of 140 basis points (bps) year-on-year (YoY) and 50 bps quarter-on-quarter (QoQ). The report underscores a striking divergence in investor strategy as DIIs also increased their stake in PSU companies to an all-time high of 18.8% in March 2025, representing a gain of 120 bps YoY and 100 bps QoQ.

This surge in PSU holdings comes as FIIs simultaneously slashed their exposure in private companies to a historic low of 20.1%, down by 90 bps YoY and 30 bps QoQ. Meanwhile, DII holdings in private companies surged to 18.7%, increasing by 180 bps YoY and 60 bps QoQ.

"Buoyant primary and secondary markets also led to increased stake dilution by Promoter groups of Private companies. This resulted in a dip in their overall holdings in the Nifty-500 to an all-time low level of 47.5% (-110 bps YoY) in March 2025," Motilal Oswal noted.

The report further added that Promoter holdings in PSU companies also dropped to 54.1% (-270 bps YoY and -140 bps QoQ) from 56.8% in March 2024.

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In terms of sectoral allocation, FIIs were significantly overweight in the Banking, Financial Services, and Insurance (BFSI) sector, with the sector accounting for 34.4% of their holdings in the Nifty-500 as of March 2025, an increase of 280 bps YoY and 300 bps QoQ.

This was followed by technology, with a holding of 10% of FII allocations, and Telecom.

Meanwhile, DIIs were observed to be overweight on Consumer, Oil &Gas, and Metals, while remaining underweight on Private Banks, NBFCs, and Real Estate, as per the brokerage report.

Within the Nifty-500, BFSI remained the largest allocation for DIIs, comprising 27.3% of total holdings, followed by Consumer at 9.8% and Technology at 9.3%.

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