FIIs Reduce Stake in Over 30 Companies That Rose 100-500% in Fy21; Time to Book Profits?

While experts advise investors to book partial profits, they warn against the tendency to blindly follow FIIs and trim portfolios. Since consolidation in large-caps are likely in the days ahead, they ask investors to exit small-cap and mid-cap stocks.

Foreign institutional investors (FIIs), which have poured in Rs 2.7 lakh crore in the Indian stock markets in FY21, have consistently reduced stake in about 82 stocks. Over 30 of them have been giving multibagger returns since March 31, 2020.

There are as many as 33 stocks which rose 100-500 percent since March 31, and in which FIIs consistently reduced stake in the last four quarters.

Experts advise investors to book partial profits amid expensive valuations and fading hopes of a quick economic recovery.

Stocks in which FIIs have trimmed stakes in FY21 include PC Jeweller, Agro Tech Foods, Vinati Organics, Gujarat Gas, Delta Corp, Shipping Corporation, JustDial, and Jaiprakash Associates.

“In a rising market, FIIs are exiting companies impacted by the pandemic, or companies in which there is corporate restructuring or corporate governance issues or whose valuations look expensive,” Divam Sharma, Co-founder, Green Portfolio Management Services, told Moneycontrol.

“We believe these are portfolio rejigs and the money will be deployed in more attractive opportunities,” he said.

FIIs holding 0505_001

What should investors do?

There are only eight stocks with a market capitalisation of more than Rs 10,000 crore in which FIIs have pared stakes. A majority of them are from the small- and mid-cap space.

Experts advise investors to take partial profits as FII-heavy stocks could face some selloff as COVID infections continue to rise, and earnings of India Inc take a hit amid heightened expectations of a V-shaped recovery.

“While selling by FIIs could also be due to high gains seen in the market in general over the last one year, we believe that consensus was caught off guard this time, particularly in assessing the second COVID wave, and most analysts had factored in a V-shaped recovery for FY22,” Vinit Bolinjkar, Head of Research, Ventura Securities Ltd, said.

“Now, with the second wave turning out to be intense and the US on the verge of opening up, we believe FIIs would also be thinking to trim their positions in emerging markets and go back to the US,” he said.

Bolinjkar also advised investors to book partial profits, especially in the small and mid-cap space, and allocate the money more to large-caps or to companies that stand to benefit, post COVID, as the second wave can lead to a further consolidation of the industry towards larger players.

Investors should not simply follow FIIs and trim their exposure. It should be on a case-by-case basis, and considering factors like valuations, future outlook, corporate governance etc., suggest experts.

“In current times, one should also track factors, including disruptions, global demand and prices as many companies are benefiting from exports and surge in international processes,” says Sharma of Green Portfolio Management Services.

“Growth plans of companies, outlook, leverage and operating margins should also be considered as we are facing uncertainties in the economy,” he said.