FIIs selling across sectors, but are gung-ho on these 12 smallcaps

NEW DELHI: Foreign investors’ love for second-rung stocks is testing the limits.

At a time when FIIs have rapidly cut exposure to the domestic market – they invested only half of what they had invested in FY17 – their investment in some midcap and smallcap stocks has hit record high.

FIIs are liberally putting in money in these stocks quarter after quarter, showing their strong biases towards them even as they turn their back on the broader market.

Healthcare businesses such as Bliss GVS Pharma, HealthCare Global Enterprises and Thyrocare Technologies, realty player Delta Corp, midcap IT firm NIIT Tech, artificial leather manufacturer Mayur Uniquoter, leisure stock Cox & Kings and retailer of home improvement and building products Shankara Building Products are a few names in a long list of FII favourites.

Many of these companies are on a strong footing.

Data showed FII holding in NIIT Technologies has hit the 40 per cent mark for the first time ever. They held 40.72 per cent as of March 31 while promoters held just 30.67 per cent. New CEO Sudhir Singh joined the company in January 2018.

Analysts noted that the IT firm has shown solid acceleration in growth momentum over the past three quarters and has given guidance for double-digit dollar revenue growth in FY19E.

NIIT Tech trades at 14 times FY20E EPS against 18.5 times of CY19E for Hexaware and 18 times of FY20E EPS for Mindtree.

“We believe a possible acceleration in growth for NIIT Tech in FY19E could lead to a further re-rating of the stock,” brokerage Prabhudas Lilladher said in a note.

In Cox & Kings, FII holding hit a fresh high of 38.93 per cent in March quarter, breaking a three-year-old record of 36.45 per cent in March 2015. The company has strong presence across segments such as global leisure and education tourism in Europe. It enjoys a 30 per cent market share of the global outbound tourism.

“Debt reduction continues to lower stress on balance sheet and make it a better play in the travel & tourism space. Its Meininger Hotels vertical and domestic leisure travel business have maintained strong revenue growth momentum, while the international leisure travel business is on a recovery mode,” Sharekhan said in a note.

Mayur Uniquoter is already a multibagger, having risen 8,000 per cent in last 10 years. FIIs held 15.8 per cent stake in the company at the end of March quarter against 14.29 per cent they held at the end of June quarter of 2015, Capitaline data showed.

Domestic auto OEMs and auto replacement businesses have been gaining good traction over the past few quarters, analysts said. The company’s margins are expected to stabilise at 26 per cent from a peak of 30 per cent reported for FY17.

HEG has seen a whopping 20 percentage points surge in FII holding at 35.57 per cent at the end of March quarter compared with 15.63 per cent reported for the year-ago period. HCG has improved gross margins by 700 bps over the last five years, mainly on better realisations and higher share of radiation therapy, Edelweiss Securities said. However, other expenses and clinician/personnel costs have increased at a much faster rate and, as a result, Ebitda margins have remained steady at 15 per cent, it said. The brokerage has a ‘hold’ rating on the stock.

In Delta Corp, FII stake has risen to a record high of 22.68 per cent compared with 18.36 per cent at the end of December quarter and 11.41 per cent in the year-ago quarter. Brokerage Motilal Oswal Securities is positive on the stock.

Among others, Shankara Building Products (at 14.69 per cent), Prabhat Dairy (at7.55 per cent), Rushil Decor (14.22 per cent), Thyrocare (9.73 per cent) , Bliss GVS Pharma (10.84 per cent) and TV Today Network (12 per cent) and Vishal Fabrics (16 per cent) are some other smallcap stocks where FII holding has hit record high levels.

Foreign investors infused Rs 26,000 crore into domestic equities in FY18, which was much lower than Rs 55,700 crore invested in FY17, thanks to a slow pickup in earnings, rich valuations and strong show by developed markets on hope of faster-than-expected rate hike by the US Federal Reserve.