FIIs raised stake in over 40 cos in last 4 qtrs; 9 stocks delivered 100% return

Foreign institutional investors (FIIs) who have poured in net Rs 12,000 crore in the last 12 months, raised stake in as many as 46 companies consistently in the last four quarters, data from AceEquity showed.

Foreign institutional investors accelerated their buying in the last two quarters especially in the stocks which have more than doubled in the last year.

Of the 46, nine stocks in which FIIs raised stake rallied more than 100 percent in the last one year that includes names like Aarti Drugs, Best Agrolife, Granules India, Balaji Animes, Apollo Tricoat, IndiaMart InterMESH, Navin Fluorine, ICICI Securities, and JB Chemicals.

Experts are of the view that most of the companies which have more than doubled are looking strong as they belong to COVID-proof sectors such as pharma, as well as agro-chemical sectors.

“All these nine companies have strong growth prospects, although the standard of corporate governance in a couple of companies is not up to the mark but is reasonably good,” Atish Matlawala, Sr Analyst, SSJ Finance & Securities told Moneycontrol.

“After the recent rally, the valuations of these companies look little stretched at the current price but are decent buying opportunities on the correction. We will recommend accumulating these stocks on the decline,” he said.

Chasing Growth

FIIs raised stake in just nine largecap companies consistently in the last four quarters that include names like AU Small Finance Bank, Bharat Forge, Piramal Enterprises, Torrent Pharma, and Avenue Supermarts while the rest 80 percent of the companies are from the small & mid-cap space.

Consistent rise in small & midcaps stocks in the last year suggest that FIIs are eyeing for growth and picking up stocks on the decline.

“The midcap and smallcap space are providing investors with an attractive opportunity for long term investment at current valuations. This could be an apt time for investors to build their midcap and smallcap portfolio while sticking to their asset allocation,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.

“FIIs have remained bullish on midcap and smallcap segment as they underperformed largecaps in the last three years,” he said.

Garg further added that stocks have given good returns in recent times. Although stocks are trading at rich valuations and investors should wait for a correction before investing.

"However, Pharma space is looking lucrative to me in this difficult time and I am quite optimistic on Granules India, Aarti Drugs, Torrent Pharmaceutical,” he said.

Picking the falling knife

Foreign institutional investors raised their stake in 11 companies which saw their prices plunge by 10-60% in the last one year.

The list includes names like Elgi Equipment, Muthoot Capital, Pennar Industries, Century Textiles, and Future Lifestyle etc. among others.

Picking stocks might not be the right strategy, especially for retail investors because of the risk profile and time horizon.

Still, experts are of the view that most of the companies have been clear underperformers and if someone plans to invest in the given companies then he/she should have a time horizon of 3-5 years.

“Most of these companies mentioned are facing tough times in fact Future group has been sold to RIL. Companies like Piramal enterprise, Century textiles, Ujjivan financial services and Muthoot Capital have strong fundamentals and can rebound quickly once the macros improve. We would suggest these companies for an investor who has 3-5 years’ investment horizon,” says Matlawala of SSJ Finance & Securities.

Garg is of the view that many stocks like Future Lifestyle, Century Textiles, Piramal Enterprises, and Elgi Equipment etc. were not on investor’s radar due to lack of interest in these stocks given poor earnings growth along with structural problems.

“However, FIIs have shown some interest in these stocks and these might prove to be the dark horse for the near future. But, I believe that investors should stick to only that investment opportunity where growth is visible,” he said.

What should investors do?

Investors invest in the market to make money or generate wealth. FIIs activity in the past one year highlights a trend but that should not be mimicked across portfolios of retail investors.

FIIs time horizon, risk-taking ability, as well as asset allocation could be very different from individual portfolios. Hence, investors should carefully study each and every stock before making a buy or sell decision.

“Aping someone else’s strategy or investments in the stock market can do more harm to an investor than a benefit. Hence, instead of blindly buying all stocks bought by FIIs, investors should follow the Peter Lynch approach. He says that ‘Behind every stock is a business, find out what it’s doing.’ In the long term, it is the performance of the business that determines the performance of a stock,” Nirali Shah, Senior Research Analyst, Samco Securities told Moneycontrol.

“A business that makes good profits while keeping its expenses low over a long time is a great business to invest in. Serious investors look at great businesses to invest, and stay with it for a long time,” he said.

She further added that given the uncertainty due to the pandemic, investors are advised to thoroughly check several fundamental factors of the businesses with respect to consistency of future free cash flows, debt to equity ratio, interest coverage ratio, management’s assessment of the situation, promoter’s pledge and future capex plans before jumping into these stocks.