FIIs bet big on India, raise stake in over 350 cos in Q1 CY18; do you own any?

Foreign institutional investors (FIIs) have remained net buyers in Indian equity markets to the tune of about Rs 15,000 crore in the first three months of 2018. According to data from market regulator Sebi, FIIs raised stake in as many as 364 companies.

The big theme emerging from the FII shareholding pattern is emergence of small and midcap stocks now becoming a significant part of their portfolio which was not the case earlier. Initially, FIIs use to invest only in quality largecap names. But in search for growth, foreign investors are now turning their attention to small and midcap stocks related to the economy or theme India. Some of the stocks in which FIIs raised stake rose nearly 100 percent.

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 percent return in which FIIs raised stake 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 (CSO), KIFS Trade Capital, said the consumption sector is a reflection of economic growth and remains a key sector having 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 an increase in FIIs stake by over 100 percent. Godawari Power & Ispat saw an increase in FII stake by over 8,000 percent. This was followed by Poddar Pigments in which FII stake rose by 1,975 percent. Gravita India witnessed an over 600 percent rise in FII stake, according to Sebi’s April 17 data.

In the pharma space, we have seen huge consolidation over the years. Sun Pharma Advanced Research Company (SPARC) saw an increase in FII stake to 6.98 percent from 6.7 percent in the previous quarter. Firms in which FIIs raised their stake but saw double-digit cuts include Hindustan Copper, Lovable Lingerie, Anant Raj, Titagarh Wagons, PTC India Financial Services, PC Jeweller, Reliance Communications, Jaiprakash Power Ventures and Vakrangee.

However, 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 (NCLT) and any positive outcome may result in windfall gains.”

Are these stocks value buys at current levels?

Are all stocks in which FIIs have raised stake be considered value buys? Maybe not. Experts feel investors should do their own research before buying based on FII outlook. “We do not think of these names as value buys, although some of these increased allocations can be definitely given a thought. Stocks like HDFC Standard Life Insurance, Venkys and Excel Group companies can be considered attractive buys,” said Pritam Deuskar, Fund Manager at Bonanza Portfolio.

He likes HDFC Standard Life Insurance as it is the most trusted brand after Life Insurance Corporation and is increasing its market share. On his buy rationale for Venky’s, he said: “The company has already proved its mettle. Demand for chicken continues to grow at 15-18 percent per annum and Venky’s is well equipped to cater to this growing demand.”

Deuskar added that fertilisers and rural consumption stocks are worth looking at. “As monsoon are expected to be normal, subsidies will reduce. The government’s emphasis on increasing the minimum support price of farm produce will also boost rural income.”

Ashar of KIFS Trade Capital is betting on Titagarh Wagons and PC Jewellers as value buys after the recent correction.