Markets may sway to the tunes of foreign institutional investors (FIIs), but the average retail investor does not appear to follow their cues. Trends in the shareholding of listed companies for the four quarters to December 2011 show that retail investors have, in fact, picked up stakes in companies ignored by FIIs.
About 10 per cent of the CNX-500 companies have seen FIIs shed significant stake of 5 percentage points or more. In more than half these stocks, retail investors have hiked their holdings.
Ignoring FII movements
In Allied Digital, for instance, FIIs trimmed their holdings drastically, from 24.7 per cent to 3.6 per cent, by December 2011. Retail investors mopped up the chunk of these shares, trebling their holding to 34.9 per cent.
Likewise, FII holdings in Balrampur Chini dropped 10 percentage points to 14.6 per cent over 2011.
Here too, retail investors upped stake to reach their current 20.5 per cent. Other stocks where retail investors stepped in to replace FIIs were Firstsource Solutions, KS Oils, Lanco Infratech and Unity Infra.
FIIs seem to have shunned companies with high debt on their books, exiting such such as 3i Infotech, GTL, GVK Power Infra and Patel Engineering.
Cementing their disregard for FII movements, retail investors have not bought into stocks where the FIIs increased stakes either. Among the 30 stocks where FIIs hiked holdings by five percentage points or more, hardly any have seen a rise in retail holding.
Not following in the footsteps of the FIIs has actually helped retail investors pocket quick gains in the recent market rally. Debt-laden companies and those beaten down by governance issues have, in fact, led the recent gains in the stock market.
As a result, almost all of the stocks in which retail investors significantly raised holding have outperformed the market from January ‘12 to date.
These stocks have clocked an average return of 44 per cent against the 18 per cent managed by the CNX 500 index.
But the recent gains may not last. In the longer term, FIIs have had a better record in picking outperformers. Among the stocks in which FII stakes rose significantly between December 2010 and 102, six of every ten beat broader market returns from December '10 to date.
For instance, FIIs increased holding in Amtek India to 18 per cent from the 7 per cent at end-December ‘10.
The stock has almost trebled in price from then to now. Similarly, stocks which saw a drop in holdings performed worse than the broad market in the same period.