HUME TUMSE PYAR KITNA - FIIS TO INDIA

By Ruma Dubey

Policy paralysis. FDI in retail and aviation continuing to drag its feet. Power grid failure showing the precarious state of India’s infrastructure. Burgeoning fiscal deficit. Rising inflation and slowing growth. Looming drought. And a general sense of despondency.

Despite all this, FIIs , it seems have decided to not give up on India. As per figures put out by SEBI, FIIs bought a net Rs.3587 crore last week, their biggest purchases since the week ending July 6. Post this, FII inflows into equity in the calendar year 2012 now stands at a net Rs.52,266 crore.

So why are they buying stocks into India when nothing, at the moment, seems to be going right? Or is it that they have some news which we do not have, based on which they are investing?

No idea about what news they could be banking on but the irrefutable fact is that India remains on their buying list. There could be a multitude of reasons for this. Firstly, some say, FIIs want to invest in India ahead of the curve. They are expecting more money to be printed – ECB saying that it might be considering buying back bonds and QE3 expected from USA, all are pointers to the fact that more money will be printed and will be in circulation. And when that happens, they need to deploy this money in markets which will give them better returns. And in the emerging markets, despite all the rough edges in India, there is faith that the country will not go phut. When money gets printed and others rush to India and other countries, these FIIs would already have an edge having already taken positions.

Secondly, there is murmur that the rupee vis-à-vis the dollar, as per a survey conducted by Bloomberg, could be around Rs.46 range by 2014. That means if they invest now, where the rupee is around Rs.55 levels, their dollar is getting them more and when rupee appreciates, they will automatically stand to make arbitrage gains. Thus there are many in the markets who say that FIIs buying into equity today is on the perception that there will be a reversal in the rupee fall and equity markets will bounce back!

Also simply put, funds need to invest and emerging markets still remain a better bet than USA, Japan or Europe. There were reports of FIIs now preferring Indonesia to India. Yes, Indonesia is indeed emerging as the new market but that country too, is a lot like India in terms of corruption and transparency issues. And its markets do not have the kind of depth which India or the others in BRIC have. So Indonesia and maybe Myanmar will see investment but to say that India will lose out to them, will be wrong.  

Then the big question which always dogs us – should we follow the FIIs; buy what they buy and sell when they sell? That sounds ideal but very difficult to follow. By the time FIIs give a ‘buy’ call on a stock through their research houses and reports, they have already bought in at large quantity and ditto for a ‘sell’ call, which indicates they have pared their holdings. Yes, we can follow the reports and buy and sell. But at the same time, it becomes imperative to keep a track of the stocks which FIIs buy. Thus the next logical question is always – what are the FIIs buying and what are they selling?

We can take a logical guess on this question based on the FII holdings. If the holdings between two quarters have come down, clearly, it means they are getting out. Vice versa when stake is going up. A cursory look at some companies reveals the story in the current Q1 – they have trimmed their holdings in Adani Enterprises, United Spirits, Unitech, JSW Steel, IRB Infra, Sadbhav Eng, Unity Infra, JMC Projects, Valecha Eng, Tata Steel,  Jindal Steel, Kennametal India, JSW Holdings, NMDC, Adhunik Metal, Tata Sponge Iron, Great Offshore, Bharti Shipyard, ABG Shipyard, JP Associates. In banking, a mixed picture has emerged, with FIIs trimming their holdings in Axis Bank, Yes Bank, IndusInd Bank, ICICI Bank but it has hiked stake in HDFC Bank, HDFC and PSU banks - Bank of Baroda, Jammu Kashmir Bank, Canara Bank  and also in City Union Bank and DCB. FII holding in SBI has gone down marginally in current Q1 too. FIIs have reduced their holding in many PSU companies too – BHEL, NMDC, SAIL, ONGC, NTPC. Cairn India is finding favour with FIIs are they have hiked stake in this company. On the other hand, in IT, they have reduced their holdings in Infosys, Wipro but hiked stake in Mahindra Satyam, TCS, Mindtree. In realty, they have reduced stake in Unitech but marginally hiked in DLF, Sobha Developers, stable in Oberoi Realty.

The stocks are endless and the list could run into pages. But based on this list, it is apparent that FIIs are selling in metals and selective banks. In IT, they are buying selectively. In infrastructure and shipping, they have sold all around. FIIs are clearly very stock specific in most cases and not very sector specific, expect for base metals.

Yes, most of the stocks which they back are very sound fundamentally; no penny stocks for them and thus makes sense to follow them. But do more so based on your own conviction and study of the stock, of which one of the criterion could be FII holding. Following them blindly would be immature. FIIs are pure traders/investors. They are here to make money and every adversity, if it presents an opportunity, will be leveraged by them.