Domestic investors, especially high networth investors, are focusing less on stocks that are the choice picks of foreign investors (FIIs). This is because continued FII selling has led to a large supply of these stocks, driving down prices.
These domestic investors are instead, turning to stocks with low FII holdings that have seen prices rise. Their shift is supported by data. During the past month, over 70% of the NSE500 stocks with FII holdings of less than 10% have outperformed the broader market.
In contrast, 59% of the stocks with more than 10% FII holding have underperformed the market.
Experts, however, advise investors to take abundant caution while selecting stocks with lesser FII holding.
Among the NSE500 stocks, the top gainers over the past month like Godfrey Phillips, Parsvnath Developers, Lanco InfratechBSE -0.33 %, Titagarh Wagons, Firstsource Solutions, Engineers India, KSK Energy, MRPL, GMR, Mahindra Holidays, Gati, TV18 Broadcast and TV Today Network have less than 10% FII holding. These stocks have risen in the range of 10% and 50% as against 4% fall in Nifty.
“Of late, action has been shifted to mid- and small-cap stocks with low FII holding and hence many of them have risen sharply despite weak market sentiment,” said Raamdeo Agrawal, joint MD, Motilal Oswal Financial Services.
“HNIs and to some extent domestic funds, are avoiding FII-dense stocks due to heavy supply in the market”.
Stocks with more than 10% FII holding like Dishman Pharma, Advanta, PTC India, Eros, Kolte Patil, Tribhovandas Bhimji, United Spirits, Kaveri Seeds, Dr Reddy’s Lab, UPL and Rallies India have declined between 15% and 25% in the past one month.
FIIs have sold equities worth Rs 28,500 crore since August 2015 while domestic institutions have bought stocks worth Rs 31,000 crore.