The Hindu Business Line : FIIs chase mid-caps

FOREIGN Institutional Investors (FIIs) are increasing their exposure to mid-cap stocks. These are stocks that have a market capitalisation of Rs 500 crore to Rs 1,500 crore.

The shareholding pattern of 170 companies for the October-December 2003 quarter reveals that FIIs have hiked their stake in companies such as Saw Pipes, Apollo Tyres, Bombay Dyeing and LIC Housing.

Commenting on the FIIs entering mid-cap stocks, Mr Ambarish Baliga, Vice-President, Karvy Stock Broking said, "The supply of new paper (IPO) was almost stagnant as there were not any major IPOs in 2003 and due to lack of fresh supply, FIIs had to invest in mid-cap companies".

The increase in FII exposure to mid-caps may have driven up the CNX Mid-cap 200 Index. This index rose 43 per cent during October-December. Stocks such as LIC Housing, Bombay Dyeing and Titan Industries, where FII buying was active during the period spurted in excess of 50 per cent. The rise in the S&P CNX Nifty index was lower at 32 per cent for the same period.

Interestingly, public shareholding in these companies have come down. Banks and financial institutions too have sold stake in a few of these companies.

Mr Nikhil Thacker, Asst Vice-President (Research), Mr Asit C. Mehta Investment Intermediaries said "at higher levels retail investors booked profits, while FIIs looked at long term growth stories and invested in mid-cap stocks". Mutual funds too have been buying into certain mid-cap stocks such as Bombay Dyeing, D-Link and India Cements.

In sectors such as housing finance, bank and technology, FII interest is spreading to mid-cap stocks. FIIs already have a substantial holding in top rung stocks such as SBI, HDFC, Infosys and Satyam. Mid-cap companies such as Hexaware, iGate Global and Hinduja TMT give them an opportunity to spread out the risks and also to widen exposure to the sector. Andhra Bank, Bank of India, Oriental Bank, Bank of Baroda and LIC Housing witnessed a huge increase in FII holding for the period. FIIs appear to be diversifying their portfolio. This would mean higher volatility in mid-cap stocks too.

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