The Hindu Business Line : FIIs, flush with cash, turn selective

FIIs are taking an active approach, booking profits on stocks that have run up, while exiting companies in which they have low stakes. How should retail investors read these moves?

Rajalakshmi Sivam

Even while flooding the market with Rs 59,000 crore between March and September this year, FIIs actually reduced their stakes in several companies. Shareholding patterns show that FIIs reduced their holdings in about one-third of the Sensex companies and half the BSE-500 companies. Foreign institutional players consolidated their Indian portfolios by exiting stocks in which they had relatively insignificant holdings while simultaneously stepping up stakes where their stake was already high.

The trends also suggest that FIIs are taking an active approach in booking profits on stocks that had run up, as they deployed fresh funds in QIP offers. With FII money redirected to fewer picks in the last six months, which are the stocks they picked up and which did they abandon? Are there any takeaways for investors from this portfolio reshuffle? Read on. In the rally that has been on since March, FIIs shuffled their portfolios to accumulate further stakes in companies where they already had sizeable holdings. Stocks that had more than 10 per cent of FII stake (in BSE-500) in March went from 205 to 232 by end September. Indiabulls RealEstate, IVRCL Infrastructure, Educomp Solutions and United Spirits are a few stocks where FIIs accumulated more shares despite already big holdings.

Consolidating

FIIs also counter-balanced this by trimming stakes in a host of companies where their holdings were marginal. Asian Hotels, Lok Housing, Novartis India and Pfizer are a few where FII stake dipped from the 1-5 per cent slab to less than one per cent. In March-end there were 278 stocks in which FIIs held less than 10 per cent or less of the outstanding shares. By September end, this set shrank to 251 stocks.

However, even as they clearly “consolidated” their holdings, FIIs are still bringing in fresh money. Between March and September, there were fresh inflows into the cash market to the tune of Rs 59,000 crore. So where has this new money gone?

Small companies

If you thought FIIs have been buying into blue-chip stocks as the market rallied, you would be wrong. FII stakes in large-cap stocks have remained largely unaltered over the past six months. Within the index basket, changes to FII holdings were pretty small. ICICI Bank and Tata Power saw a 0.2 percentage point fall in FII stake, Hindustan Unilever and Reliance Industries saw a little over 0.3 percentage point increase in FII holding. The real FII action was, however, seen in the mid- and small-cap counters.

Skimming through stocks in the BSE-500 basket, three-fourth of those that saw a dip in FII stakes were small-cap stocks (market cap less than Rs 2,500 crore). However half the stocks that saw FIIs raise their stake also came from the same small-cap space.

As Wire & Wireless, Indo Tech Transformers, Balaji Telefilms and Gati saw FII stakes trimmed, Orbit Corporation, 3i Infotech, Eicher Motors and Voltamp Transformers saw FII interest increasing. It should be noted here that the BSE Smallcap index has run up 134 per cent between March and September, surpassing the 76 per cent return generated by Sensex in the same period.

Mid-cap companies (market-cap less than Rs 8,000 crore) also saw mixed interest, with companies such as GE Shipping, Federal bank, Zee Entertainment, and Pantaloon Retail being dumped by FIIs as GVK Power Infra, IDFC and Hindalco Industries were accumulated.

Sector preferences

FIIs did not show any strong sector bias in their churning. However, they broadly added construction and realty stocks while reducing holdings across media stocks. Construction companies saw FIIs increasing their stake through the QIP route.

Stocks such as Unitech, Indiabulls RealEstate, HDIL, Hindustan Construction and Sobha Developers saw an over 15 percentage point increase in FII holding in the period between March and September. On the other hand, stocks such as Television Eighteen India, New Delhi Television (NDTV), Wire & Wireless, Entertainment Network (India) registered an over four percentage point drop in FII holdings in this period. The portfolio reshuffle by FIIs has resulted in FII ownership across sectors. Realty and construction have, however, emerged as the sector with the highest FII ownership. From 12 per cent of the holdings in March, FIIs' share in the outstanding market cap of the sector (based on BSE-500) rose to 23 per cent in September. The FII share in the banking sector moved from 18 per cent to 20.7 per cent in the same period.

The IT sector was a loser, with FII stake falling from 19.6 per cent to 19 per cent. Entertainment saw even sharper corrections; for two quarters in a row FIIs steadily reduced their share in these companies. From a 13 per cent holding in March, FIIs' share in the media sector fell to 11 per cent as of September end.

Investors would have made hefty gains had they bet on construction stocks in March. Unitech, HDIL, Hindustan Construction and Sobha Developers have all trebled in price in the six-month period under discussion.

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