The Hindu Business Line : Track the big guys

Markets usually react positively to institutional interest in stocks. Institutional investors such as mutual funds, pension funds or hedge funds have access to a greater amount of information than retail investors.

Therefore, when such institutions invest in a particular stock, it sends a positive signal. But just as these institutions drive stock prices up when they invest, they can also drag prices down when they sell, just by the sheer volume of their transaction. So it is vital that investors keep a close tab on the moves made by the market’s biggest players.

Hot on their trail

While institutional exposure should not be your only investment rationale, signs of heightened institutional activity in a stock can be useful cues for your investment decisions.

It is easy to figure out whether a stock has attracted institutional interest. Both BSE and NSE provide the shareholding patterns of companies every quarter. Companies submit details of institutional holding, FII holding and other major shareholders at the end of every quarter.

You can even identify individual investors by looking up shareholders who hold more than 1 per cent in the company. You should be able to glean trends in institutional interest in a company by looking up the shareholding pattern across several quarters.

To have an overall view of how much FIIs and mutual funds have bought/sold, investors can also visit the Web site of the Securities and Exchange Board of India (SEBI). News about major block deals or bulk deals can be tracked by looking up the BSE and NSE Web sites after trading hours.

Bulk deals are transactions that involve the transfer of more than 0.5 per cent of the number of equity shares of any company listed on the stock exchange.

Two big bulk deals in the same stock in a week, for instance, might signal institutional investor attention. As part of regulations, listed firms have to inform the stock exchanges when a substantial acquisition of shares has been done. Here are some useful links:

http://www.bseindia.com

/shareholding/

sharehold_search.asp;

http://www.nseindia.com

/content/

equities/eq_bulkdeals.htm;

http://www.sebi.gov.in/Index.jsp?contentDisp=FIITrends;

http://www.nseindia.com/content/equities/eq_bulkdealsarchive.htm

At www.corpfiling.co.in , one can find SAST (Substantial Acquisition of shares & Takeovers) data to find out which fund has bought/sold stocks and, more importantly, when.

Prices are not disclosed but you can corroborate these moves with the NSE archive data for bulk deals on that date.

Big money is smart money

Retail investors are often at a disadvantage to large institutions when it comes to access to information. Overseas funds or even domestic mutual funds have strong research teams.

Their analysts have access to a lot of market data that retail investors would be hard-pressed to afford.

So the presence of institutional investors does reinforce the perceived quality of a stock and its likely growth prospects and may be reason for you to look at a stock more seriously.

When they sell

However, while retail investors can follow the moves of institutional investors, they are usually the ones who bear the brunt of a market crash.

Information such as when FIIs or mutual funds exited a stock, the price at which they did it, and so on, is usually known after the deal is done, and there is often little time for retail investors to react. The gains from the stock may have already begun to evaporate.

Institutional investors have to adhere to performance goals. They are mostly pension or mutual funds and also have to share returns with their investors on a regular basis. A portfolio manager who has had a bad quarter may dump under-performing positions.

Foreign investors may book profits on Indian stocks as their risk perception changes, even though a company’s fundamentals in the near term may be bright.

This can lead to extreme volatility in certain stocks and for the small guy looking for cues — he/she just might happen to be on the wrong side of a given trade!

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