To buy or not to buy? FIIs and DIIs seem to have different answers to that question when it comes to the FMCG space. An analysis by CNBC-TV18's Farah Bookwala shows that while foreign institutional investors have largely increased their stakes in FMCG companies over the last year, domestic institutional investors have reduced their stakes. Here's why.
Overseas and domestic investors are viewing India's FMCG sector through different lenses, this economic slowdown. BSE data shows:
- 13 out of 15 main FMCG companies have seen DII's cut their stakes upto 16.8 percent between Q2FY13 and Q2FY14.
- During the same period, FIIs increased their stakes in 11 out of the 15 FMCG companies by anywhere between 0.7 percent and 4.1 percent.
- While DIIs have sold nearly Rs 80,500 crore worth of equities between Q2FY13 and Q2FY14, FIIs have pumped in Rs 1,12,000 crore.
So what's behind this disparity?
Market analysts say at this point DIIs are net sellers due to heavy redemption pressure and are consequently cutting stakes. But FIIs who are long-term investors and don’t face similar redemption pressures, continue to bet on the FMCG space, which has strong long-term terms prospects and is particularly attractive after rupee depreciation.
But another of school of thought feels that FMCG stocks are losing confidence from DIIs due to unjustified valuations, particularly at a time when companies are seeing their bottomlines under severe pressure. Companies such Asian Paints are trading at 40 P/E and Nestle at 44 times.
Dhirendra Kumar, Founder & Chief Executive, Value Research says: "Equity funds are shrinking, so funds on proportionate basis are scaling down. That apart, FMGC has come down because of the rich valuations. The anticipation that the broad market might be poised for a turnaround, that actually shifts the whole focus from FMCG to others."
"Of course there is redemption pressure but bigger reason is that valuations are stretched. DIIs looking for a proper juncture to enter," says Kaustubh Pawaskar, analyst, Sharekhan.
And that’s why experts say, DIIs are shifting their preference to sectors such as it, telecom and pharma where they see considerable room for upside.
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