Foreign institutional investors (FIIs) pared stake sequentially in some of the prominent large-cap companies in the June quarter, data from AceEquity showed
From the universe of companies having a market capitalisation of more than Rs 50,000 crore, there are as many as 31 names in which FIIs pared their holdings. These include Infosys, HDFC, ICICI Bank, ITC, Bharti Airtel, Bajaj Finserv, Titan Company, Eicher Motors and Tata Steel.
Out of 31 companies, 19 have been trading lower so far in 2020. These include SBI, Coal India, ITC, Tata Steel, Tech Mahindra and IOC.
The rest 11 companies have given positive returns in 2020 so far, including Divi’s Laboratories, Dr. Reddy’s Laboratories, Infosys, Britannia, and HCL Technologies.
Does that mean that investors should turn cautious?
Well, experts are of the view that if we look at the data, FIIs have reduced the stake marginally which could be attributed to the rebalancing of portfolio, or booking profits amid the rise in valuations. Hence, the paring of the stake should not be viewed negatively.
“In most of the large-cap names where FIIs have reduced exposure the percentage reduction is very miniscule. This could be due to the continued selling and rotation seen in April even after the March month selling,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.
“One cannot infer or draw any conclusion that these companies' growth model has become weak because of the minor reduction in FII holding. At times we see a rotation of flows within the large-cap space and last three months have been exceptional due to the pandemic crisis,” he said.
Oza further added that some of the minor reduction in exposure can get corrected in the September quarter as many of the laggards and underperforming large caps have rebounded sharply in July and August.
Other factors to track:
Tracking what Foreign institutional investors are doing is a good thing, but that should not be the only basis of making a buy or sell decision, suggest experts.
Investors should ideally see a trend for 3-4 quarters rather than basing their decision on statistics of one quarter, they say. There may be many factors why FIIs decided to reduce stake; hence, investors should do their own research before pressing buy or a sell button.
“There are many NIFTY-50 heavyweights where we have witnessed reduced exposure of FIIs but growth might play a vital role in the future and might drive benchmark indices. In my opinion, investors should wait at least 2-3 quarters before making any decision and question on a growth model,” Gaurav Garg, Head of Research at CapitalVia Global Research Limited told Moneycontrol.
“Investors should look for a good business driven by a good set of people who will always deliver good returns in the longer run. Corporate governance plays an important role when it comes to the sustainability of the business. Higher potential in earnings growth is always a good sign to invest in stock and hold for the long run,” he said.
Ajit Mishra, VP Research, Religare Broking told Moneycontrol that apart from FII holding, investors must look at various other factors such as its fundamental track record, financial leverage, and return ratios (particularly debt to equity).
“Further, it has also become very important to check on whether the company is facing any corporate governance issues as this leads to sharp valuation correction. Also, buying/selling would depend on what valuations the investor is interested in the stock and whether it is justified,” he said.Disclaimer
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