High FII holdings are key to stock price rise

OVERSEAS investors with access to billions of dollars at cheap interest rates remain more powerful in the Indian stock markets than local funds as their portfolio of companies have returned more than the companies where they cut stakes, an analysis of BSE 500 companies by SundayET and CNI Research shows.      Stock prices of companies where foreign institutional investors (FIIs) increased their holding in the September quarter rose 32% on an aggregate during the period, the study with CNI, a listed research firm, shows. Shares of companies where FIIs' holding either declined or remained the same, appreciated 16%.      "Institutional investors like FIIs understand the fundamentals of the company better due to availability of tools and techniques and manpower,'' said Amitabh Chakraborty, president — equity, Religare Capital Markets,. "FIIs's holding and share price movement have a strong positive correlation.''      Overseas investors have invested a net Rs 67,694 crore in Indian stocks as they appeared attractive after tumbling to their lowest in many years in March, compared with local mutual funds which sold a net Rs 4,077 cr in the same period. Furthermore, a raft of share sales to institutional investors under the so-called QIP, attracted mostly overseas investors as the domestic institutions did not have the kind of access to funds like the FIIs who were borrowing cheap elsewhere and investing here.      Companies where there was no change in FIIs' holding posted a return of 18% and those companies where their holding was reduced rose by 16%. In fact, companies that outperformed the Sensex, which appreciated by around 18% during the same period, belong to the category which saw higher FIIs' holding.      Top five companies, which attracted FIIs the most, are Housing Development & Infrastructure (HDIL), Sobha Developers, Hindustan Construction Company, Indiabulls Financial Services and Orbit Corporation. Most of these companies are engaged in construction and infrastructure related works which suffered the worst during the credit crisis. In HDIL, foreign holding rose to 26.01% from 7.05% in June. Similarly, Sobha Developers saw its FIIs' holding going up to 18.68% from 2.54% during the same period.      Some of the companies where FIIs cut holdings returned lesser. Among companies where FIIs' holding declined substantially, are Wire & Wireless (India), PTC India, Max India and Balrampur Chini. Their holdings in these companies reduced by as much as 10 percentage points. They reduced their stake from 8.73% to 0.88% in Wire & Wireless during the period.      Out of BSE 500 companies, only 456 had declared their shareholding pattern. Of 456 companies, FIIs' holding went up in 254 companies, remained same in 21 and declined in 181.      anand.rawani@timesgroup.com