Staying with winners! Top 40 stocks in which FIIs raised their stake in last 5 quarters

Foreign institutional investors (FIIs) who poured in over Rs 40,000 crore in the Jan-March quarter increased their stake in 40 companies in the S&P BSE 500 index for the fifth quarter in a row.

Companies in which FIIs raised their stake for the fourth quarter in a row include names like Force Motors, BASF, Bharat Forge, RIL, Shriram Transport, MRPL, Federal Bank, Kwality, Biocon, Fortis Healthcare, Gujarat Gas, PC Jeweller, Ajanta Pharma etc. among others.

FIIs have been busy accumulating stocks across broader themes. If we look at the data closely, it suggests that foreign investors are not just placing their bets on largecap stocks but they are not shying away from midcap names which was not the case a few years back.

“Emerging economies have been outperforming developed economies in terms of growth. This has encouraged FIIs to hunt for growth opportunities beyond the widely tracked large-cap universe of stocks,” Hitesh Agrawal, EVP & Head – Retail Research, Religare Securities Ltd told Moneycontrol.com.

Over the past couple of years, the mid- and small-cap stocks have outperformed the large-caps by a good margin, which is a reflection of the relatively stronger growth delivered by the smaller companies.

“We expect this trend to largely continue, which in turn will continue to attract FII capital into Indian companies. Notably, FIIs too are able to generate considerable alpha in their portfolios over the medium-to-long-term from these equity investments,” said Agrawal of Religare Securities.

The valuation of India markets might look stretched at current levels but there are plenty of opportunities at a stock specific level which investors should not miss.

India commands a higher premium when compared to the likes of other emerging markets because of its higher growth potential which will keep India as preferred investment destination for FIIs.

“The FIIs too have been focusing on India given its attractive fundamentals and expectations,” Prasanth Prabhakaran, Senior President & CEO at YES Securities (India) Ltd told Moneycontrol.com.

“There are months wherein FIIs have pulled out funds on account of global events but DII flows have supported the markets. We expect this trend to continue and the flows to remain strong from a long-term perspective,” he said.

The Sensex trades at a 12-month forward P/E of 18.7x, which is at an 8 percent premium to a long-period average of 17.3x. At 2.7x, the Sensex P/B is at its historical average.

However, at 22.5x trailing 12 months and 19x FY18E P/E, valuations do not offer much comfort unless accompanied by an earnings surprise, Motilal Oswal said in a report.

Betting on FII heavy stocks is not a bad idea, but use these stocks as a filter for your portfolio. Invest in those stocks which suit your risk profile because the reason for investment by FIIs and time period could vary from an individuals point of view.

FII heavy stocks could face higher volatility at times when foreign investors are cashing out which would make things difficult for an investor, especially retail, to handle.

“But, there is nothing against investing in the stocks where FII holdings are high, as it on several occasions indicates of the sound or improving business fundamentals or value in a company,” said Agrawal of Religare Securities.

“However, at the same time, it is imperative for an investor to also understand what he/she is getting into. This is primarily considering the fact that the investment time horizon and the risk-taking ability of FIIs vis-a-vis that of an individual investor could be starkly different,” he said.