The S&P BSE Sensex rose over 11 percent in the January-March quarter but stocks in which foreign institutional investors (FIIs) raised their stake rose up to 70 percent in the same period, data available with Capitaline showed.
Of over 300 companies which have declared their shareholding pattern for the March quarter, more than 160 companies saw a surge in FIIs holding in the same period while more than 150 stocks saw a decline in the holding of FIIs.
Most of the stocks in which FIIs increased their holding gave huge returns such as SpiceJet which rose up to 77 percent, followed by VIP industries which gained 68 percent, and DCB Bank rose 58 percent in the same period.
FIIs increased their stake across sectors such as banking, finance, textiles, cement, auto, FMCG, NBFC as well as pharma space.
Only 20 stocks which saw an increase in FIIs holding closed in red which include names like Intellect Design, MindTree, Sonata Software, Dr. Lal, HCL Infosystems, Inox Wind, Titagarh Wagons etc. among others.
Investors can filter stocks which are FII favourite in the past because the flow into markets is likely to continue in future as well. Although, FIIs heavy stocks are more stable but investors should do their own research because, at the time of market correction, these stocks could fall more.
“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,” Hitesh Agrawal, EVP & Head – Retail Research, Religare Securities Ltd told Moneycontrol.com.
“However, at the same time, it is imperative for an investor to also understand what he/she is getting into. Moreover, it is important to note that during times of market turbulence, FII heavy stocks may face greater volatility, which may be difficult for an investor, especially retail, to handle,” he said.
There is another factor which investors should consider before investing in FII heavy stocks is 'risk taking ability'. The time horizon and the risk-taking ability of FIIs vis-à-vis that of an individual investor could be starkly different.
FIIs poured in over Rs30,000 crore in the Indian equity markets in the December-March period, compared to nearly Rs1000 crore investment by domestic institutional investors (DIIs) in the same period.
FIIs are hunting for stocks across largecaps as well as midcaps in an attempt to create alpha over benchmark returns. One factor which has prompted FIIs to move from largecaps is the sheer outperformance of the mid- and small-cap stocks by a good margin in the last 1-2 years.
"The market is overall expensive therefore FIIs are looking at opportunities across large caps and midcaps, also sustained the flow of domestic money has resulted in stocks trading at higher multiples,” Abhimanyu Sofat, Vice President, Research at IIFL told Moneycontrol.com.
“At these levels unless the earnings catch up the valuations may not sustain. We assume the earnings catch up would happen in the next 6-7 months. At this stage investors may look at stocks with any possible value buying opportunity during some corrections,” he said.