Foreign institutional investors, which have been net buyers in Indian equity markets since April, used the recent bounce back in the market to reduce stake in more than 80 stocks that more than doubled investor wealth in 1HFY21.
FIIs reduced stake in 546 stocks in the September quarter on a sequential basis. 88 of them have risen 100-500 percent so far in the fiscal year 2021.
Most of these stocks were from the small & midcap space.
Stocks which more than doubled investor wealth since April include Videocon Industries, Evergreen Industries, KPIT Technologies, JSW Steel, Hexaware Technologies, Rossell India, IOL Chemicals and Jain Irrigations.
Experts are of the view that it makes sense to book profit in high beta space and investors can again look at buying those stocks on dips.
“As high beta play is a risk when PE goes above 30. The current market scenarios where news flow will remain higher and risk will increase with every passing day. It is always preferred to dilute some part of risk,” Vishal Wagh, Research Head of Bonanza Portfolio told Moneycontrol.
“At the same time, as per the portfolio management rules set by the FII the allocation needs to adjust in both the cases either in case of quick appreciation or reduction in the prices,” he said.
FIIs have not shied away from reducing stake in some of the well-performing largecap companies. They have reduced stake sequentially in 65 largecap companies that include like HUL, HDFC, Bharti Airtel, HCL Tech, ITC, SBI, HDFC Life and Bajaj Finserv.
We have used a filter of stocks with a market cap of more than Rs 20,000 cr to term as largecap companies. Experts feel that there is nothing for investors to worry about because, FIIs have reduced stake marginally in most of the names which can be termed as profit-taking.
“Among top 30 market cap companies declaring results till the end of October, FIIs have reduced stake in around 43 percent of them, albeit in small percentages. Barring Reliance, IT, and Pharma sector companies, the rest of the stocks haven’t given any large returns, and many of these stocks would be subjected to profit-booking, if not done already by now,” Gopal Kavalireddi, Head of Research at FYERS told Moneycontrol.
“With the government aiming to give a serious push to the economy, a long-term portfolio investor would be well-off by staying invested in these companies (barring select PSUs). But in the shorter term, US presidential elections, calendar year-end profit booking, upcoming Union Budget 2021 could cause volatility in returns,” he said.
Gaurav Garg, Head of Research at CapitalVia Global Research Limited is of the view that this stack cut might be temporary as better than expected Q2FY21 results might add thrust to sentiments of investors. “There is a higher probability of out-performance of large-cap in coming quarters,” he said.
What are the other factors which investors should track?
FIIs were largely responsible for the bulk of the rally which we have seen in the past, but things are changing as domestic institutional investors (DIIs) are actively putting the equivalent amount of money in D-Street to keep things stable for investors.
FII entry or exit from a particular stock doe influence the stock price to an extent. However, if the underlying fundamentals of the company remain intact, retail investors should continue to stay invested, rather than take a potential haphazard call to enter or exit, suggest experts.
“The reasons for each investor are different to enter or exit the stock – in terms of risk profile, time horizon, and returns expectations. An appropriate instance of such a dramatic move in recent times relates to a Hyderabad based pharmaceutical company where, post the exit of a reputed private equity firm holding a large stake, the stock rallied by 190% between July 1 till end of October, rewarding investors beyond their wildest expectations,” says Kavalireddi of FYERS.
“Any decision to buy or sell a stock should be based on sound techno-fundamental research, taking into account the technical strength of charts as well as quantitative and qualitative financial & business aspects. Never blindly follow an FII/DII or a large investor just for the sake of investing,” he said.
He further added that investors should understand the business model and profile of the company, its future prospects, management strength, and quality, to get the necessary conviction and to make the right decision.