FOLLOW WHOM - FIIs OR DIIs?

By Ruma Dubey

Till 19^th August 2016, FIIs had bought net shares worth Rs.410 crore. DIIs have been net sellers consistently - FIIs have been net buyers since March while DIIs have been net sellers since March, except in May when it was a net buyer to the tune of Rs.6758 crore – the same month when FIIs net buying was lowest in this fiscal at Rs.38 crore.

This is how it always works - Foreign Institutional Investors (FIIs) are buyers while Domestic Institutional Investors (DIIs) are sellers and we the people, are mostly mute spectators!

Many are perplexed, trying to figure out this contrarian behavior of both these institutional investors. Many are worried about this poles-apart behavior of both. But actually, this is how they have historically almost always behaved. When FIIs are buyers then DIIs are sellers and when FIIs are sellers, then DIIs are buyers.  So this time around too, they are both following their own set pattern.

But if we really do need to probe into the nitty-gritties of things, then we can look into what they are buying and selling, which could give us some understanding into their trading psyche or maybe their perception about the sectors.

The biggest FII in terms of value invested, Europacific growth Fund,  has currently got 1% stake in 16 companies worth Rs.52,000 crore as at 30^th June 2016. The stocks that it backs – HDFC Bank, ICICI Bank, Axis Bank, Maruti, Grasim, Tata Motors, Reliance Industries, RCom and Idea Cellular.

Another big investor is the Government of Singapore, invested in 33 companies valued at Rs.41,085 crore. Their top picks are Dr.Reddy’s, Infosys, HDFC, HDFC Bank, Lupin, DLF, M&M.

Government Pension Fund Global (GPFG), Norway, holds stakes in Indian companies, including ABB, AB Nuvo, Ahluwalia Contracts, Alembic Pharma, Allahabad Bank, Andhra Bank, Ashok Leyland, Asian Paints, Bank of India, Bank of Baroda, Century Plyboards, IndusInd Bank, SBI, Reliance Industries, Tata Steel and Tata Motors.

Interestingly, the foreign fund major has been reducing its stake in a number of companies that cater to mining and coal assets, such as CESC, Coal India, GMDC, NTPC, Reliance Power, Reliance Infrastructure and Tata Power, from April this year.

DIIs, many say are not really selling specific sector or stock. They are profit booking every time FII buying steps up.  As one analyst explained, FIIs have the liquidity and the bandwidth to buy expensive stocks which an Indian investor at our interest rates will not find it so lucrative. Thus DIIs use the opportunity to sell as they know that FIIs have the strength to move the market while DIIs, when needed can only lend support.

DIIs have been paring their stakes in cyclicals, mainly auto and are putting more money into materials rather than defensive stocks. And a comparison of the top 10 FII underweight list and the top 10 overweight list of DIIs shows that FIIs are buying stocks which the DIIs are selling and vice versa.

Probably as Warren Buffett has often pointed out, he calls this the “institutional imperative” where like a herd, they follow each other, even if they know it is not logical as they do not want to “miss out”; not having the guts to take contrarian calls. This is ditto for FIIs and as well as DIIs as both are following their own herds.  And that also probably explains why mutual funds are not really fancied by Indian investors.

And we as independent, intelligent investors do not have such peer pressures to follow any herd. So do not follow either the FII or the DII. Do your own home work and take a well informed decision.  After all, you make your own destiny, not by blindly following the path of others.