FII embrace of smallcaps, midcaps gets tighter with higher holding in Jan-Mar

FII embrace of smallcaps, midcaps gets tighter with higher holding in Jan-Mar

New Delhi, Apr 23: The big theme emerging from the latest Sebi data on FII shareholding pattern is the small- and mid-cap stocks cementing their place in the portfolios of the foreign institutional investors. Initially, FIIs invested only in quality large-caps. But as market matures, stocks are discovered and search for growth continues, foreign investors are now turning their attention to small- and mid-cap stocks related to the economy or theme India.
Foreign investors net bought Rs 15,000 crore of Indian equities in the first three months of 2018, and raised their holdings in 364 companies, according to Sebi’s April 17 data. As per BSe data, share prices of some of the stocks in which FIIs raised their stakes almost doubled in the three-months ending March.
DK Aggarwal, Chairman and Managing Director, SMC Investments & Advisors, advises caution. “There may be cases where FIIs might have turned positive on economy related stocks, but we need to look at the quantum of FII shareholding in companies. At times, we see FII holding is increasing, but this is not enough. One should also look at whether FIIs hold significant share in the floating shareholding (other than promoter). Sometimes, the stock also runs up because of low liquidity factors.”
Stocks which delivered 40-100 per cent return in which FIIs raised stakes include names like Excel Industries, Omax Autos, Infinite Computer Solutions, Vishal Fabrics, Asian Hotels North, Godawari Power and Ispat, Shakti Pumps India, Venky’s (India), Nelco, among others.
Ritesh Ashar, Chief Strategy Officer, KIFS Trade Capital, said the consumption sector is a reflection of economic growth and remains a key sector with immense potential.
“This space is vast and includes categories like cement, auto, personal care and power. The rural economy is strengthening since last year’s normal monsoon. There will be great consumption demand in times to come. If the monsoon predictions are accurate, the agricultural sector is set for a boost. Moreover, sectors like fast moving consumer goods, auto, fertilisers and cement are likely to get a boost,” he said.
Fertiliser companies like National Fertilizers, Zuari Agro Chemicals and Nagarjuna Fertilizers and Chemicals saw an increase in FII stake in the March quarter. Nearly 40 companies saw the FIIs more than doubling their stakes in them. Godawari Power & Ispat saw an increase of over 8,000 per cent. This was followed by Poddar Pigments in which FII stake rose by 1,975 per cent. Gravita India witnessed an over 600 per cent rise in FII stake, according to Sebi’s April 17 data.
In the pharmaceutical sector, a huge consolidation has taken place over the years. Sun Pharma Advanced Research Company saw an increase in FII stake to 6.98 per cent from 6.7 per cent in the previous quarter. Firms in which FIIs raised their stake but saw double-digit share price cuts include Hindustan Copper, Lovable Lingerie, Anant Raj, Titagarh Wagons, PTC India Financial Services, PC Jeweller, Reliance Communications, Jaiprakash Power Ventures and Vakrangee.
About 250 stocks have given negative returns in the quarter under review but FIIs used this selling to buy into names such as Vakrangee, Jaiprakash Power Ventures, Reliance Communications, PC Jewellers, Titagarh Wagons among others.
But the billion dollar question is whether these stocks are value buys at current levels. “Many times, big investors have some information or insight on the future of companies because of which they increase their ownership in anticipation of gains,” DK Aggarwal, Chairman and MD, SMC Investments & Advisors, said.
He added that these investors tend to make a fraction of their investment in companies that are in a bad shape but are near to some resolution. “Some of the companies that you are talking about are there in the National Company Law Tribunal and any positive outcome may result in windfall gains.”