Foreign institutional investors (FIIs) have poured in more than Rs 5,000 crore in the Indian market in last one year, and have consistently raised stake in over 100 companies.
More than 70 percent of them have given negative returns in the same period.
FIIs raised stake in as many as 104 companies over the past four quarters, out of which, 73 companies gave negative returns in the same period, data from AceEquity showed.
The list includes Newgen Software, Pennar Industries, Equitas Holding, Century Textiles, Dishman Carbogen, and Future Consumer.
Most of the companies in which FIIs have raised stake in the last one year consistently are from the small & midcap space. Experts are of the view that FIIs picked up a stake in these companies amid comfortable valuations as well as hopes of economic recovery, but advise caution in the near term.
“These stocks have received traction due to the valuation comfort and early signs of economic recovery. However, it would be advisable to keep exposure low in midcap and smallcap space, citing the uncertainty over the virus peak,” Ajit Mishra, VP Research, Religare Broking told Moneycontrol.
“We’re seeing reopening of the economy but the pace of activities would depend on the COVID-19 situation. Further, one should also evaluate management quality, balance sheet strength and competitive advantage of these companies as well,” he said.
Note: Here is a list of 16 stocks out of 104 which have plunged more than 50%
Out of 104 stocks, there are as many as 31 stocks that have given positive returns, and three stocks have given multibagger returns but most of them belong to the small & midcap space.
Stocks that have given positive returns include names like Best Agrolife which has risen more than 500 percent in the last one year, followed by Navin Fluorine that gained 123 percent, and Apollo Tricoat rose more than 100 percent in the same period.
Note: We have collated a list of 10 stocks out of 31 which gave a positive return in 1 year
What should investors do?
Foreign institutional investors (FIIs) have been very selective in picking stocks in the last year. The stock selection indicates that the stocks which they think are available at a discount are from the small & midcap space which have the potential to see a vertical rise if the economy recovers.But, due diligence remains to be the key when picking stocks for investment, suggest experts. At best, investors could well use the list to shortlist stocks, but avoid mimicking the portfolio, caution experts.
“The stocks from small, and midcap space had taken more hit than the large-cap space in the last quarter. There is no hard and fast rule that the stocks will perform better, being stake acquired and increased by the FII,” Hemant Sood, Managing Director, Findoc told Moneycontrol.
“One can have a look at the stocks in which FII had increased their stake and can consider using the top-down approach to evaluate the stocks as scenario changed post-COVID-19.
What to buy?
Investors should decode the interest of FII investment in a particular company. Along with that, investors should analysing company's past financial track record, promoter background, balance sheet, cash flows, valuations, and growth prospects are extremely important, suggest experts.
“We believe investors can buy stocks such as Avenue Supermart, Relaxo footwear, ICICI securities, HDFC life insurance, Varun Beverages, ICICI Pru life, Jubilant life science, and Granules India as these stocks have decent fundamentals and can give healthy returns over the long term,” recommends Mishra of Religare Broking.
“While one may avoid investing in stocks like AU Small Finance Bank, JM Financials, Tata Steel BSL, Bank of Maharashtra, Zee Entertainment, future lifestyle and future consumer,” he said.
Sood of Findoc told Moneycontrol that stocks like HDFC Life, ICICI Prudential Life, Avanti feeds, ICICI securities, Vinati Organics, Torrent Pharma, Granules, Insecticides Ltd. etc.
“There is minimal disruption in the business of these companies which act as a positive and investors can pick and evaluate stocks from these sectors before taking an investment decision,” he said.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.