Funds Cut Unilever India Stake to 4-Yr Low Amid Sales Dip

Key Takeaway

• Global funds reduce Hindustan Unilever stake to a 4-year low of 12.7%, amid weak consumer demand and rising competition.
• Despite foreign sell-off, domestic ownership in Hindustan Unilever hits record 13.2%, reflecting shifting investor confidence.
• Indian financial market faces volatility with potential corrections and rupee pressure, amidst global rate adjustments and election uncertainties.

Foreign Investors Reduce Holdings

Global investors have significantly reduced their stake in Hindustan Unilever Ltd., India's largest staples company, bringing foreign ownership to a four-year low of 12.7% at the end of March from a peak of 14.5% in June of the previous year. This reduction in stake comes as the company faces challenges such as weak consumer demand and increasing competition from new-age brands. The company's shares have seen a decline of more than 9% over the past 12 months, making it the second-worst performer in the NSE Nifty 50 Index. Abhay Agarwal, a fund manager at Piper Serica Advisors Pvt. in Mumbai, highlighted the valuation concerns and the impact of a three-year sideways stock movement during a rising market on investor sentiment.

Domestic Ownership Increases

Despite the sell-off by foreign funds, domestic ownership in Hindustan Unilever has risen to a record 13.2%, with the parent company Unilever Plc and other group members holding just over 60%. Retail investors own about 12% of the shares. The increase in domestic stake is attributed to the company's significant size and weighting in the benchmark index, making it a necessary inclusion in local investment portfolios. This shift in ownership dynamics reflects a changing landscape in investor confidence and strategy regarding Hindustan Unilever.

Market and Currency Pressures

The Indian financial market is currently facing volatility, with the Sensex and Nifty indices showing signs of potential corrections amid concerns over overvaluation and the upcoming national elections. The rupee has also been under pressure, reaching a record low against the dollar, as global interest rate adjustments lead to outflows from Indian stocks and bonds. This marks the first instance since late 2022 of joint outflows in fixed income and equity markets in April, driven by expectations of prolonged high US interest rates. These developments pose challenges to India's financial stability and investor sentiment.

External Factors and Outlook

The anticipation of India's national elections and the uncertainty of their outcome, alongside external pressures such as potential equity sell-offs in the United States, are major factors influencing current market sentiment. Additionally, global financial dynamics, including the movements of the yuan and yen, and the upcoming US corporate earnings season, are closely watched for their implications on Asia's economic strategies and the health of the US corporate sector. These factors, combined with local challenges such as extreme temperatures and geopolitical unrest, contribute to the cautious approach adopted by investors.

Street Views

• Abhay Agarwal, Piper Serica Advisors Pvt. (Neutral on Hindustan Unilever):

  "Overseas investors will look at the parent company trading at less than half the valuation multiple... Revenue growth has slowed significantly and the three-year sideways movement in the stock during a rising market has brought in some wariness."

• Souvik Saha, DSP Asset Managers Pvt. (Cautiously Optimistic on consumer stocks focusing on the rural economy):

  "Consumer stocks focusing on the rural economy could see some positive momentum... Commentary from some of the consumer companies are indicating that the worst might be over, and some of key subsidies for the rural areas is set to continue."