FIIs turn their attention towards mid and small caps

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FIIs turn their attention towards mid and small caps

In the last quarter, from January to March, Foreign institutional investors, FIIs, have increased their stakes by more than 10% in 29 CNX 500 companies. In the same period, the total FII inflows into Indian equity markets stood at Rs 17,324 crore.

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In the last quarter, from January to March, foreign institutional investors, FIIs, have increased their stakes by more than 10% in 29 CNX 500 companies. In the same period, the total FII inflows into Indian equity markets stood at Rs 17,324 crore.

Data compiled by Moneycontrol clearly indicates that FIIs are slowly and surely showing a keen interest in the second and third rung mid cap and small cap companies in the Indian markets.

These companies belong to banking, finance, engineering, pharmaceuticals, sugar, fertilizers, telecommunications and auto components sectors - a sure indicator that the Indian growth story is a product of trickle down effect, analysts say.

In some companies like Bajaj Auto Finance, South Indian Bank, Prism Cement and Dishman Pharmaceuticals, the increase in FII stake has been over a 100% during Q4FY06.

For instance, in Bajaj Auto Finance, FII holding has gone up by 280% from 6.29% on December 31, 2005 to almost 24% on March 31, 2006. In South Indian Bank, FII stake jumped from 9.95% to 23% in the same period.

In Prism Cements though the absolute increase is minimal from 1.02% to 2.35%, the increase is a stupendous 130% over a period of three months. For Dishman Pharmaceuticals, FIIs increased their shareholding from 5.91% to 12.11% over January-March quarter, an increase of 105%.

Sumeet Rohra of Antique Stock Broking believes that with the benchmark indices trading at very rich valuations, FIIs are turning their attention towards the mid cap and small cap universe to diversify their risks and thereby optimize returns for their shareholders.

Rohra, however, advises cautions that an increase in FII holdings should not be the only criteria for retail investors to put their money in these stocks. "Investors should do their homework first about these companies and only then make an informed decision."

Nevertheless, an increase in FII holdings in these second and third tier companies indicate the faith of foreign investor community in the depth and solidity of the Indian stock markets, feel analysts.

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