FIIs raise stakes in mid- and small-cap stocks

Allocate a bulk of their investment, nearly 50% of inflow thus far, to mid-and small-caps

Foreign institutional investors (FIIs), which have invested $12 billion (Rs 70,550 crore) in Indian equities so far this year, have increased their stakes in about 150 mid- and small-sized companies during the quarter ended June. During that period, about half their investment was in mid-and small-cap firms.

According to the latest shareholding pattern data, FIIs have raised their stakes in PVR, Repco Home Finance, Himatsingka Seide, Shasun Pharmaceuticals, Persistent Systems, City Union Bank and Sintex Industries by five percentage points.

Of the 350 mid-cap and small-cap companies that have declared their December quarter shareholding pattern so far, FIIs have increased their stakes in about half, or 172 companies. For 64 companies, the holdings remain unchanged, while in the remaining 114, FIIs cut stakes.

In the June quarter, foreign investors made net investments of $6.3 billion (Rs 37,599 crore), hoping for growth-oriented policy announcements in the new government’s maiden Budget.

In a post-Budget note, Nirav Sheth, Kapil Gupta and Prateek Parekh of Edelweiss said, “With the big event (Budget) behind, the market focus will shift to fundamentals, and earnings growth and interest rate expectations are critical triggers. While monsoon failure is a risk, it could be mitigated through pro-active government policies.”

Stock price
Strong buying by foreign investors has seen the stocks of some companies in which FIIs raised their stakes more than double since April. The list includes Sintex Industries, Atul, JK Lakshmi Cement, Shasun Pharmaceuticals, Diamond Power Infrastructure, Techno Electric and Engineering, EPC Industries and Brigade Enterprises.

The gush of liquidity has seen the mid- and small-cap indices outperform their larger peers. Since April, the S&P BSE mid- and small-cap indices have rallied 31 and 45 per cent, respectively, compared with the 15 per cent gain of the BSE Sensex.

In the June quarter, FIIs raised their stake in City Union Bank by 11 percentage points to 32.23 per cent; at the end of the March quarter, their stake stood at 21.54 per cent. On July 17, the bank stock touched a record high of Rs 83, rallying 48 per cent since April.

In Shasun Pharmaceuticals, FIIs raised their stake 6.6 percentage points to 6.68 per cent, compared with a mere 0.09 per cent in the March quarter. During this period, the stock rallied more than 100 per cent — from Rs 71 to Rs 167.