Mumbai: Stock market analysts here have long tried to look for patterns and trends in the investments of foreign institutional investors (FIIs) in the Indian market. A Mint analysis shows that there is none.
Between April and December 2007, FIIs raised their stakes in 85 firms that are part of the BSE 500, a grouping of the 500 most valuable firms by market capitalization on the Bombay Stock Exchange (BSE). They pared their stakes in 53 companies that are part of BSE 500 in the same period. Most FIIs churned their portfolios significantly and rapidly.
Their behaviour shows that they didn’t particularly care for any sector or specific stock.
FOREIGN PLAY (Graphic)
For instance, in the first nine months of 2007-08, FIIs were net buyers in four pharmaceutical firms (which means they bought more shares than they sold in these firms) and at the same time net sellers in another four. All eight are part of BSE 500. Similarly, they raised their stakes in five public sector banks and pared it in two.
Nor does there seem to be a connection between FII behaviour and stock movement.
Thus, shares of Vakrangee Softwares Ltd, where FIIs raised their stake by more than 25 percentage points to 34% in the nine months, rose by 58.63% in the same period. Shares of four other firms where FIIs raised their stakes by between 17 and 23 percentage points rose by between 94% and 242%.
However, shares of the companies where they cut their stakes significantly also rose, by between 5% and 112%. BSE’s benchmark Sensex index rose 55.19% in this period.
No clear trend emerges even when the price-earnings multiples (a rough and ready measure of whether a stock is overvalued) are considered. Four of the five Sensex firms in which FIIs raised their stakes boasted P-E multiples in excess of the industry average on the basis of trailing earnings. The Sensex is a basket of 30 stocks.
“It was largely churning of portfolios from the sector specific investors, who were booking profits at higher levels and moving over to other more attractive companies in the same sector,” said Suraj Saraogi, managing director at Keynote Capitals Ltd.
FIIs have raised their stakes even in sectors that were under pressure. FIIs increased their stakes in nine companies in the strong rupee-ravaged IT sector and pared stakes in only two. And some analysts, such as Ambareesh Baliga, vice-president at Karvy Stock Broking Ltd, say that FIIs will continue to buy IT stocks this year too because the rupee will not appreciate as much as the market expects it to.
Since late 1993, when they were allowed entry into India, FIIs have invested $66.8 billion in Indian equities net of sales. In 2007, FIIs invested a record $17.2 billion but in the first five weeks of 2008, they have been net sellers to the tune of close to $3 billion.