The biggest mystery of Stock Markets is to find out FII Buying in Stocks. It will not be an extrapolation to state that FII Buying can make or break the fortune of a Stock. The best example from recent past is Vakrangee. The fortune of the stock changed twice within 3 months backed by heavy FII Buying and then FII Selling. There was heavy FII buying which took stock from 52 week low in June’15 to 52 week high in Aug’15. After failure to get the payment bank license, the stock collapsed to near 52 week low same month i.e. in Aug’15. In general, the market favor stocks in which FII buying is evident. This data is available every quarter when companies declare their shareholding pattern. An increase in FII holding means FII buying was active during last quarter. As an investor, this information is of no use as the game may be already over. The fun is to enter at the time of FII buying. If you identify such stocks then it can make or break your fortune.
It’s a known fact that FII buying is crucial for the survival of Indian Stock Market. DII buying can only support the market but cannot drive it. We have seen this in recent meltdown i.e. NIFTY collapse from around 8600 to near 7500. If FII (Foreign Institutional Investors) decide to EXIT then it may cause mayhem in the market. Recent directive of Govt of India reg levy of MAT on FIIs was a step to cool the nerves of FIIs and provide stable tax regime. An investor always hunts for stocks which are hot favorites of FIIs. Such stocks can deliver extraordinary returns.
Misconception about FII Buying
Before we proceed, i would like to clarify one of the biggest misconceptions about FII buying. Though the traders are aware of this fact but still not known to many. You must have read the news reports or watched on TV channels that FII bought +300 Crores or FII sold -250 Crores. Normally investor considers it as a gross no’s but fact of the matter is that these no’s are net value i.e. Buy value minus Sell value. For example, if today FII’s bought securities worth Rs 2000 Cr and sold Rs 1600 Cr. In this case, the FII figure reported in media will be +400 Cr. In short, on net basis FII buying was Rs 400 Cr which is a positive signal. On the contrary if FII buying is Rs 2500 Cr and selling at Rs 3000 Cr then FII fig is -500 Cr i.e. on net basis FII selling was -500 Cr which is a negative signal. Therefore, point i am trying to make is that if FII reported fig is negative then it doesn’t mean that FII buying has stopped. On a net basis, they might be selling which is negative but they are still buying which is subdued buying.
How to find out FII Buying in Stocks?
(a) FII/FPI Trading Activity:
On the daily basis, NSE publishes the FII Trading Activity. Prima facie, this data seems to be of no use for the common investor but if you map it with stocks then you can conclude a lot. Personally i observed that you can map more accurately when there is an either a strong buying or strong selling. In the absence of strong signals, the accuracy is very low. Anyways, an investor does not have any choice but to rely on existing data points. To start with, we can map only NIFTY stocks. It is based on the fact that max FII buying is from NIFTY bucket. In other words, frontline stocks are preferred by FIIs. Gradually you can study the FII holding pattern in midcap and small stocks & include them in your mapping list.
To share an example, how i keep track. Today, On the net basis the FII buying was +650 Cr. It’s a strong signal. I checked the stock movement in NIFTY. I observed that there was very heavy delivery based buying in SBI, Axis Bank and Tata Motors of Rs 250 Cr each. This level/scale of buying is not possible in DII trading. Therefore, i mapped these stocks in FII watchlist. A similar mapping on strong signal days will help to get some idea on favorites and not so favorite stocks of FIIs. Similarly unusual price movement & heavy selling in Maruti may indicate that probably FIIs are selling in this stock. Otherwise, Maruti is a very stable stock.
(b) Volume & Delivery:
Another way to check is to observe sharp movements in volume and delivery of stocks. After that map such stocks to favorite themes and sectors of FIIs as discussed in next point. The best example i can think of is INOX Leisure. There is an unusual movement in volume and delivery of INOX leisure. When i mapped it to the favorite sectors of FIIs then i observed that this stock is part of urban consumption theme. Currently, FIIs are bullish on this theme, therefore, there is a high possibility of FII buying in this stock.
To identify the sectors and themes on which FIIs are bullish, you need to do a lot of studies. Also, keep a close watch on research reports of foreign brokerages and interviews in business channels. After you keep yourself updated for month or so you will get a fair idea of themes and sectors on which FIIs are bullish. As per my analysis, current favorites of FIIs are Urban Consumption, Banks, Pharma and IT. This list may change tomorrow also. You should always bet on sectors and themes which are common among various foreign analysts. Though they don’t disclose their cards but an investor can always catch hints. You can also check my list of 7 Sectors for long term investment.
(d) Quarterly Reports:
You can always check the quarterly reports of your favorite stocks to check FII shareholding. This info is also available on sites like www.moneycontrol.com. It will help you to track the pattern of FII buying in your portfolio/watch-list. In fact, i observed that some investors start offloading their holdings if they observe any decrease in FII holding. In other words, they trust the analysis of foreign analysts more compared to desi ones. If FII holding is decreasing then, there must be some solid reason for some. The fact of the matter is FIIs have more visibility to operations of the company compared to the common investor.
Lastly, there is a possibility that you might miss some important piece of information. Therefore, on the regular basis you may search Google News about FII activity through keywords like FII buying, FII Selling, FII Stocks etc. It will throw news articles you missed on FII Trading activity.
Conclusion: Through this post, i am not concluding that as an investor we should only buy stocks which FIIs are buying. FII buying means increased activity, interest in the stock and more fund flow in the stock. Whenever any such news is out like RBI hiked FII limit, FII buying in Stock A or Stock included in some International indices. The price of stock A will definitely increase by 2%-5% in a single day. Secondly, it is not necessary that stocks with high FII holding or buying activity perform the BEST. The best example is IDFC. This stock has substantial FII holding but is gross under performer. Therefore, only FII buying cannot ensure that stock will perform in future. This parameter can be one of the parameters but not the sole criterion for Stock Selection. It is important to carry out Fundamental or Technical Analysis before you commit your hard-earned money.
Words of Wisdom: Always remember that if you are buying a stock with high FII holding or favorite of FIIs then it will fall more sharply when FIIs decide to pull out. The correction will be more than the market correction. The best example is ICICI Bank. It is one of the most corrected stock in recent market mayhem. It fell from level of Rs 325 to Rs 265 due to heavy FII selling. You never know when the fortunes change overnight. Therefore, always keep a watch on the stock market. The days of Buy and Forget are gone. These days, if you buy then keep an eye else say bye bye :).
Disclaimer: Among all the stocks discussed in this post, currently i have a position in Inox Leisure. The objective of this post is only to create an awareness.and educating investors about the Subject matter. The views and opinion expressed on this website are my personal views and is NOT an investment advice/Stock Tips whether to buy, sell or hold the shares of a particular stock. All investors are advised to consult their investment advisor and/or conduct their own independent research into an individual stocks before making any decision. I am not responsible for any loss or implications arising out of any decision taken by the readers after reading my post.
Copyright © Nitin Bhatia. All Rights Reserved.
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