FIIs invest most in beaten-down stocks

There has been a surge in foreign institutional investment over the past six months. The sensitive index of the Bombay Stock Exchange has gone up by more than 100% between early March and now, mainly because of investment by foreign institutional investors (FIIs). Collectively, they have put in Rs18,677 crore between March and June 2009. Who have been the big beneficiaries of this investment? Interestingly, it is the real estate companies that seemed to be going under in late last year and early this year which have got most of the money from FIIs.

An analysis of foreign holding in 1,300 companies in the Moneylife database shows that FIIs portfolio in Unitech and DLF has increased from 8.24% to 22.79% and from 6.24% to 15.4%—a rise of 277% and 247% respectively. Investment by FIIs in Dewan Housing Finance Corporation rose from 8.56% to 20.56%—a solid gain of 240%. FII holding rose manifold in Ruchi Infrastructure (from 6.53% to 13.83%) and Indiabulls Real Estate (from 41.73% to 61.71%) also. Among other stocks in which FIIs poured money were Soma Textiles & Industries (from 17.51% to 37.11%) and IFCI (from 6.06% to 12.07%) also—a rise of 212% each.
 
The foreign buying pressure was intense only in the small-cap counters. While these stocks were the most sought after by foreigners, there were hardly any
large-cap stocks which hogged the attention. Crompton Greaves and Larsen & Toubro are two such stocks where FII investment increased. There was a lot of buying in Bank of Baroda also.
 
The surge in FII investment is an indication of renewed hope among foreigners about India. Whether they believe in the long-term India growth story or is it merely an opportunistic move to collect some short-term gain will be clear during the next correction.
—Pratibha Kamath and Subrata Das [email protected]
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