The Hindu Business Line : How and where they invested

FIIs seem to largely follow a stock-specific strategy. It does not matter whether the sector or industry is doing well or is an under-performer at the time of investment.

What kind of an investment strategy do FIIs adopt? Do they ride on sectoral themes or do they follow a stock-specific strategy?

A study of the changes in FII holdings in Indian companies between June 2006 and June 2007 shows that FIIs seem to largely follow a stock-specific strategy. It does not matter whether the sector or industry is doing well or is an under-performer at t he time of investment.

FIIs follow the smart cherry-picking strategy, where they pick out the good stocks even in a sector that is relatively in the doldrums or in the grip of a cyclical downturn.

Similarly, in a rapidly growing industry, they seem to carefully pick their candidates for investment.

Smart strategy

Take the sugar industry, for example. The sector has been caught in a downturn with sugar prices falling and companies struggling to shore up their falling margins in the last year and more (see Table below).

In fact, sugar stocks have been huge underperformers in relation to the broad market with most of them registering negative returns over the last year.

Yet, FIIs have quietly used the soft stock prices to accumulate some of the better sugar stocks such as Shree Renuka Sugars (stake up 10.52 percentage points to 20.12 per cent since June 2006) and Balrampur Chini (stake up 3.41 percentage points to 24.92 per cent). In the same period, they have reduced their holdings in Mawaana Sugars and Dwarikesh Sugars.

Such a strategy is also visible in sectors such as hotels and logistics.

In hotels, FIIs increased their exposures to stocks such as Indian Hotels, Oriental Hotels and Advani Hotels while reducing it in Hotel Leela Venture, EIH Associated and Royal Orchid Hotels. In logistics, Gateway Distriparks and Container Corporation were in favour while Allcargo Global was out.

Steering clear

There are sectors, though, which foreign investors seem to have avoided like the plague. No prizes for guessing that oil refining is one.

In pharma and healthcare, they seem to have gone slow on accumulation.

The only exceptions were Glenmark, Glaxo and Nicholas Piramal, in each of which FII stake has increased. However, one has to note that within FIIs there could be divergent views on specific sectors/stocks.

So, what are the sectors in favour now?

The predominant investment theme among FIIs now appears to be infrastructure.

Thus they are overweight on sectors such as construction, power and power equipment, logistics and infrastructure financiers.

Stocks such as GVK Power, IDFC, PFC, IVRCL, Nagarjuna Construction, Gammon India, ABB, Areva T&D, Emco Transformers, SAIL, Thermax, Container Corporation and CESC have seen significant increases in FII holdings.

FIIs also seem to have been indifferent in their preferences between large-cap, emerging large-cap, mid-cap and small-cap stocks.

The proportion of stocks with increase in FII investment in each of these categories appears much the same with small-cap stocks such as Dhampur Sugars, GV Films, PVR Cinemas, Bartronics and Pritish Nandy Communications finding the benevolent eye of FIIs, along with their larger brethren.

RAGHUVIR SRINIVASAN

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