FIIs up stake in 457 companies

In the December quarter, foreign institutional investors (FIIs) who were net buyers and bought shares worth approximately Rs 1.7 lakh crore in 2020 sequentially raised stakes in more than 400 companies. 68 of the 457 companies raised stake in quarter-on-quarter basis, data shows that it has more than doubled the investors wealth since June 30.

Tejas Networks, Somany Ceramics, Indo Count Industries, Hindustan Foods, Tata Elxsi, and Tanla Platforms are some of the businesses in which FIIs have increased their stakes.

With a market cap of more than Rs 20,000 crore, there are only 13 stocks in which FIIs increased their stakes in the December quarter. These include, Maruti Suzuki, Wipro, ICICI Bank, HDFC, Asian Paints, Kotak Mahindra Bank, Infosys and HDFC Bank, etc. Data indicates that FIIs are pursuing growth and most of the stocks in which they increased their stake are from the small and midcaps.

Over the last three years, small and midcap indices have underperformed the Sensex 30 and Nifty 50 benchmark indices. Small and midcap indices have trended lower and decreased dramatically until March 2020 after their all-time highs of 2018. This resulted in the opening up of opportunities of extreme value for all investors.

Though stocks from these market caps have performed well over the past eight-nine months, the coronavirus pandemic, Atmanirbhar Bharat government initiatives, PLI schemes, etc. have provided small and midcap companies with a new lease of life.

With the government making serious and tangible openings in providing the right steps to uplift businesses and the economy at large, India's economic recovery is still in its infancy and striving to return to normalcy. Many of the small and midcap shares might emerge as winners over the next 18 -24 months.

Takeaway for Investors.

Individual investors should prepare to recognize potential opportunities for those companies that can reach a prolonged growth period, producing stable and superior returns over the next three to five years.

Many of the shares are trading at a P/E that is considerably higher compared to their industrial P/E. For eg, Tata Elxsi's P/E is 49.26 while Nifty IT's P/E is 33.40. Most of the valuation ratios signal short-term investors to book gains as the stock prices are expected to improve ahead of time.