FIIs Throng Mid-and Small-Caps

Foreign institutional investors (FIIs) have accumulated equity shares of mid and small-sized companies as their holdings in select stocks by as much as eight percentage points during the October–December quarter, the latest shareholding pattern data shows.

Analysts suggest that post the rally in the large-cap counters, mid-cap stocks would have appeared more attractive based on valuation for the FIIs to up their holding in these stocks/companies.

Of the 453 mid-and-small cap firms that have so far declared their December quarter shareholding pattern reveal that FIIs have increased their stake in nearly 42% or 190 companies and in 101 companies, their holdings remain unchanged. While, in the remaining 162 firms they have reduced their stake during the recently concluded quarter.

Among individual stocks, Ceat, Pennar Industries, UPL, APL Apollo Tube, Natco Pharma, HDIL and Zee Learn have seen FIIs up stake between 4–8 percentage points during the recently concluded quarter, data suggests. Some experts also attribute this to the growth potential of these companies.

FIIs stake in personal products maker Gillette India has increased by 6 percentage points to 7.81% from 1.68%. The overseas investors have bought shares in offer for sale (OFS) by Gillette India promoters.

“Equity flows continue unabated with CY13 receiving $20 billion (third highest equity flow ever). Private Financials, Utilities, Technology and Automobiles were the top sectors seeing maximum FII inflows during CY09-CY13,” said Rajat Rajgarhia, managing director - institutional equities at Motilal Oswal Securities.

Racing ahead

A strong buying by overseas investors have seen, the market value of the companies in which FIIs increased their stake has appreciated by an average 19% against an average less than 12% gain recorded by the remaining companies.

The gush of liquidity has seen the mid-and small-cap indices outperform their large peers during the period. Since October, the S&P BSE mid-and small-cap indices have rallied 15.7% and 18.5% respectively, as compared to a modest 8.7% gain on the S&P BSE Sensex.

FIIs stake in information technology (IT) companies such as eClerx Services, Polaris Financial Technologies and Persistent Systems has increased 3–4 percentage points on hopes of uptick in spending by clients and a rise in discretionary spending during 2014 on better macro-economic environment in United States and European Union.

Aurobindo Pharmaceuticals, FDC, Biocon, Oberoi Realty, Indiabulls Real Estate, Amara Raja Batteries and PVR have seen FIIs up their stake between 1–3 percentage points, data shows. On the other hand, their holdings in Ashok Leyland, Voltamp Transformers, Jubilant Life Sciences, Peninsula Land and Tilaknagar Industries have declined more than 2 percentage points each.

“With the US Federal Reserve tapering its bond buying programme, India could see moderation in flows. This will particularly impact the sectors / stocks where the FII holding is high. With four months remaining for the Lok Sabha elections, a lot of action is expected on the political front which is likely to keep markets volatile and the environment uncertain,” Rajgarhia cautions.

For Harendra Kumar, managing director at Elara Capital, Entertainment Network India, Navneet Publication and TTK Prestige remain value buys in the mid-cap space.

Shriram Transport Finance, Glenmark Pharmaceuticals, Cummins India, Crompton Greaves, Supreme Industries and SKS Microfinance are the top mid-cap picks for Dhirendra Tiwari, head of research at Antique Stock Broking.

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