Foreign Institutional Investors (FIIs), which remained net sellers in the cash segment of the Indian equity markets for about Rs 25,000 crore, raised stakes in about 200 companies in the S&P BSE 500 index, a data collated from Trendlyne on 21 October showed.

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The data suggests that foreign institutional investors preferred to raise stakes in small and midcap companies with the growth potential.

 

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Stocks in which FIIs raised stakes in the September quarter, include names like KNR Construction, Jindal Saw, GMM Pfaudler, IIFL Finance, HEG, Quess Corp, Voltas, NALCO, and Aavas Financiers.

“FIIs increasing their stakes in smaller stocks are a good sign for these companies as it vets their stories and indicates that there is still enough juice left in them despite the good run they have had over the last year,” Vikas Singhania, CEO, TradeSmart, said.

“On the other hand, it also indicates that the FIIs are not finding interesting opportunities in frontline stocks, which would mean that the difference in returns between smaller indices and benchmark indices may widen further,” he said.

Out of 200 companies in which FIIs raised stakes in the September quarter sequentially, 22 companies saw an increase of over 2 per cent each, the data from Trendlyne showed.

How to decode the data?

FIIs have raised their stakes on a QoQ basis that includes names from NBFCs, consumer, power and energy space, healthcare, and infra. Analysts attribute the churn as a healthy rebalancing act.

“The growing stake QoQ of FIIs can be seen majorly in the BFSI, Realty, Healthcare, and Metal stocks. This seems to be a rebalancing act for the FIIs,” Gaurav Garg, Head of Research at CapitalVia Global Research, said.

“The consumers and healthcare stocks have seen lesser focus of FIIs as these sectors are expected to stay muted for upcoming few quarters and sectors like BFSI and energy have seen greater stakes as these sectors are expected to be promising for next couple of quarters,” he said.

They (FIIs) also give more weightage to the momentum seen in a particular sector at the same time maintain the quality of the companies that are included in FII portfolio. The investments are made from a medium-term perspective, suggest experts.

“Generally, FIIs/FPIs follow the pattern of investing as per the momentum of the market or that particular sector.  They give more weightage to the momentum as they generally prefer to invest with a medium-term view.  They give almost equal weightage to quality and value but are lesser than the weightage that they give for the momentum,” Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd, said.

“As the broader trend for the Indian market is getting stronger, we might see furthermore investments in those areas where the momentum is high,” he said.

What should investors do?

Investors should not blindly follow what FIIs are doing in their portfolios. A careful assessment should be done of the companies in which FIIs tweaked their holdings to match their (retail investors) risk profile and investment horizon.  

At best, investors can use the data to shortlist stocks for their portfolio, suggest experts. They can also consult their investment advisor before making the investment decision.

“While FII buying in a company is a good sign, it does not mean that investors blindly mimic their purchase. The investment timeframe of an FII may differ from that of a retail investor,” says Singhania of TradeSmart.

“The recent buying that becomes public information may be the first tranche. One cannot be sure of when the remaining purchases would take place. A retail investor would not have the capacity to buy the same stock at various price points as an FII does,” he said.

Finally, for an FII, the investment may be a very small portion of their total corpus that may not be affected by wild swings in the share price of the small company, highlights Singhania.

Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.