(1888PressRelease)
May 01, 2009 - CNI Research has carried out a data compilation of 394 companies where FIIs’ stakes have changed in Q4. In order to understand the impact of FII action in Indian market, the data has been segregated into three different categories i.e. companies in which FII holding has dropped below 5%, companies in which FII holding has dropped yet the holding is above 5% and the third category is the companies in which the FII have raised stake.
The break up suggests that out of 394 companies under coverage, in 121 companies the FII stake has dropped below 5%. In 164 companies the FII stake has dropped but the holding is still above 5%. There are 109 companies in which the FII stake increased.
This study was conducted to find out the co-relation of FII selling & buying on the stock prices. The stock market was on a continuous downward movement for the entire Q4, after the fantastic rally in Dec 08, due to Satyam scam. The trend reversal started only from March 17 which allowed only 10 trading sessions which were in favour of market recovery.
CNI research has tabulated its observation on price co relation with the FII action.
Price co relation with FII buying / selling
Particulars
Below 5%
Above 5%
Stake
Raised
Total Companies
121
164
109
Price Increased
35
38
48
Price increase (%)
28.9
23.2
44.0
Price decreased
86
126
61
Price decrease (%)
71.1
76.8
56.0
The table clearly shows that the companies in which FII have raised stake have shown distinct sign of price rise vis a vis the other section of the companies. The price rise is seen in 44% of the companies where FII raised stakes against 29% where the FII holding was below 5% and 23% where the FII holding was above 5% after selling. This clearly suggests that there is direct co-relation of FII buying and share prices.
“This study should act as precursor for investors to decide the stocks in which they should be investing. Companies where FII are raising their stake have a greater probability of their share prices rising as against other companies. The drop in prices of 56% of the companies where FII stake went up was purely on account of period discrimination. The market trend reversal started from 17th March 2009 and the effect of the buying in these companies was not reflected in the share prices due to lesser time span”, says Mr. Kishor P Ostwal, CMD, CNI Research Ltd.
The analysis also suggests that the prices have shown downward trend in companies in where FII holding have dropped. The drop is seen 71 % in cases where the FII holding has come down below 5% and 77 % in cases where the selling was there yet the holding is above 5%. “The former represents a safe zone for investors as there is very little left with FII for selling and hence the price reversal will be sharp and very soon. This will help investors who are interested in bottom fishing”, Mr. Ostwal adds.
The only segment which poses high risk is where the FII holding is still above 5%. It may not be true if the market itself goes up substantially from current level. But if for any reason market reverses its trend and starts correcting, this segment will be the one where maximum risk is involved. The reason seems to be very obvious. FII are sellers because they are underweight in these companies. If market trend is upward their selling may get easily absorbed by some new players which may not affect the prices. However, if market trend reverses downwards, then FII are known for making bottoms which is clearly against the investors.
Thus, CNI Research believes that a strong inference can be drawn, that where the FII stake has been on rise and company is in strong sector with visible growth the investors should go all out. The bottom fishing should be done in the category where FII holding is below 5% or almost nil, e.g. Century Textiles, Bombay Dyeing, CCL Products - all these stocks have shown marked recovery from its low prices on FII selling. This is classical example of under ownership.
The third category could pose risk because this is the only category where there is over ownership and any negative outlook or change in sentiments could mean fresh FII selling to generate cash.
About CNI Research Ltd:
CNI Research Limited is a BSE Listed, leading Indian Research Company analysing and providing Data, Research Reports and Financial Information about Companies that are into the Small and Medium Cap category. CNI today has more than 40,000 subscribers from the retail Investors who rely on CNI for authentic and reliable information on Capital Markets to make their investment decisions. This information is provided to them online through their Financial Portal www.chamatcar.com .
CNI Research operates in the highly fragmented SME segment where information is hard to come by. Most of the research in India is done on large companies while there exists, practically no reliable information on smaller companies. CNI established in 2000 has successfully stepped into this void and established itself as a serious research house that sources hard to find data from these enterprises and does in-house research to come up with reports that are reliable and often predict the future happenings.
For more information, please contact:
Sunil Kumar Singh / Vinita Dhawan
Finesse PR
Telephones: +91-11-43046200 (30 lines)
Email: sunil ( @ ) finessepr dot com / Vinita ( @ ) finessepr dot com
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