Foreign institutional investors (FIIs) have been aggressively buying medium and small-cap stocks for the past three weeks, on the back of higher inflows into actively-managed funds and comparatively cheaper valuations than their large-cap peers.
After pulling out close to $2 billion (Rs 9,000 crore) in May, FIIs turned buyers of Indian shares this month. Till yesterday, they had net-purchased shares worth $2.31 billion (Rs 10,685 crore), showed the Securities and Exchange Board of India (Sebi) website.
Leading FIIs bought shares of mid-cap and small-cap companies like Core Projects, Nirlon, Aban Offshore, Bajaj Finserve, Balaji Distilleries, TTK Prestige and Everonn Education in the past three weeks.
The renewed attraction among FIIs for mid and small-cap stocks is driven by the fact that these stocks are under-owned by them compared with large-cap stocks, experts say. “The segment had witnessed steeper declines during the crisis and FIIs had cut on ownership. In recent times, the increased inflows into these companies resulted in ownership levels rising again,” said Sukumar Rajah, managing director and chief investment officer– Asian equities, at Franklin Templeton Investments.
“The other possible reason could be relatively higher inflows into actively-managed funds rather than exchange-traded funds (ETFs). The former tend to invest more in the mid-cap space,” he added.
Overseas investors also feel that mid and small-cap companies have delivered good earnings and should benefit from the strong economic growth momentum. “Mid-caps are obviously cheaper (compared with large-caps) and have attractive growth rates,” said Joseph Mammen, global head of sales and trading at Elara Capital.
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He expects mid-cap stocks to continue their outperformance over the large-cap stocks, only till they catch up with the valuations of the latter. “The Sensex is now trading at around 16 times FY11 earnings estimates and if these companies’ profits continue to grow at 25 per cent levels, we can see good upside in large caps,” he added.
At Tuesday’s close of 17,534.09, the Sensex had gained 3.5 per cent this month, while the BSE Midcap and Smallcap indices rose 4.1 per cent and 5.7 per cent, respectively.
| SMALL IS BIG | ||||
| Date | Company | Name of the FII | No of shares bought | Price (in Rs) |
| 14-Jun | Everonn Education | Morgan Stanley | 155,000 | 422.15 |
| 16-Jun | TTK Prestige | Citigroup Global Markets | 100,361 | 855.37 |
| 18-Jun | Balaji Dist | Macquarie Bank Limited | 530,000 | 43.50 |
| 18-Jun | Bajaj Finserv | Swiss Finance Corporation | 1,105,938 | 403.90 |
| 21-Jun | Aban Offshore | Morgan Stanley | 240,000 | 745.06 |
| 24-Jun | Eveready Industries | Citigroup Global Markets | 475,000 | 65.39 |
| 24-Jun | Nirlon | The Royal Bank Of Scotland N V | 2,800,000 | 70.75 |
| 28-Jun | Core Projects | The Royal Bank Of Scotland N V | 2,100,000 | 232.41 |
| Source: BS Research Bureau | ||||