Foreign institutional investors (FIIs) poured in USD 6.7 billion in Indian equities, led by domestic news flow such as state and civic election wins for NDA, improved fundamentals, as well as initiation of crucial reforms such in sectors such as real estate and banking.
In Q1FY18, till date FPI outflows (USD 0.5 billion) have been marginal from Indian equities although debt inflows continue to be strong (USD 3 billion) and in line with other EM trends, ICICI Securities said in a note.
Recent data suggests that FIIs have been busy accumulating stocks in sectors such as private retail banks, telecom, Infrastructure, cement, pharma, and power.
Top ten stocks where FIIs holding increased in the last two quarters include names like Bharti Infratel, LIC Housing Finance, Bharat Forge, REC, Power Finance Corporation, NMDC, Cipla, Hindalco, Tata Global Beverages, and Tata Power.
FIIs have been busy shedding stake in companies in sectors such as autos, pharma, steel etc. A sharp drop in FII holding could be taken as a warning sign that fundamentally does not support the current price trend.
Top ten companies where FIIs decreased their holding in the last 6 months include names like Dr Reddy’s Laboratories, Aurobindo Pharma, Jindal Steel, Divi’s Laboratories, Britannia Industries, Tata Motors, Adani Ports, Lupin, ACC, and UPL.
FIIs reduced their holding in Hero MotoCorp and United Breweries after increasing in the last two-quarter which suggests caution.
If we closely monitor FIIs portfolio then up to 30 percent is concentrated in stocks like Infosys, HDFC Bank, HDFC, TCS and Reliance Industries.
The foreign institutional investors pulled out nearly Rs 1400 crore so far in the month of May and history suggests that there is 50 percent chance FIIs will turn net sellers in this month.
What should investors do?
Investors should not blindly buy or sell what FIIs are doing, but they could take cues from the trend and shortlist their stocks to bet. If the stock is looking overvalued according to your estimates and also features on the sell list of FIIs then it will be better to book profits in that stock.
"Increasing or high FII holdings in a stock, irrespective of its market capitalization, may be an indicator of the improvement in business fundamentals of the company. However, it is also important for an investor to understand the investment he/she is getting
"It must be noted that the risk-taking ability and the investment horizon of an FII vis-Ã -vis an individual investor could be considerably different, which could be the distinguishing factor while making the investment call. Moreover, during times of market turbulence, FII heavy stocks may face greater volatility, which may be difficult for an individual investor to handle,"
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