FIIs reduce stake in 40 largecap stocks in Q3 FY21; time to book profits?

Market Outlook
Representative image.

Representative image.

Foreign institutional investors (FIIs) who were net buyers in Indian equity markets to the tune of Rs 1.7 lakh crore in 2020, reduced stake in over 40 largecap companies sequentially in the quarter ended December.

For reference, we have shortlisted companies with a market cap of over Rs 20,000 crore, as on January 25, 2021.

FIIs reduced stake in about 45 companies in the December quarter. These include TCS, RIL, Avenue Supermarts, Sun Pharma, Bajaj Auto, ONGC, IOC, and Dr Reddy’s Laboratories, and Tata Motors, among others.

BSE 500 list FIIs_001

Note: The above table is for reference only and not buy or sell ideas

A lot of companies in which FIIs reduced stake are top bluechip companies and sector leaders. Data might suggest that some of the stocks may have peaked out but experts advise investors not to get worried.

FIIs reducing stake in top largecap companies could be a sign of rebalancing the portfolio or booking profits at higher levels as some of the names are already trading at fresh 52-week highs. Hence, if someone is holding any of the largecaps they could still remain, net buyers, as the long-term potential is intact.

“FII’s reducing their stake in most of the above-mentioned companies could potentially be a part of their rebalancing strategy as some of the stocks belong to high beta sectors whose valuations are significantly high,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research Limited told Moneycontrol.

“One more reason for reducing their stake could be profit booking as stocks like IFB Industries Ltd, Laurus Labs Ltd, and Adani Enterprises Ltd have generated more than 200 percent returns,” she said.

Chepa further added that the underlying reason to reduce their stake could be different for different stocks. “Hence, it is advisable to go through a careful study with respect to each stock before making any decision,” she said.

The Nifty50 has more than doubled from March lows prompting most largecaps to give phenomenal returns. Most largecap stock prices have moved up, some delivering greater than 100 percent returns in a short time.

There are four largecaps that have rallied more than 100 percent. These include JSW Steel, Tata Motors, Adani Enterprises, and Laurus Labs. Meanwhile, nine stocks rose 50-100 percent since June 30, data showed.

The sharp rally seen in markets and individual stocks resulted in equity portfolios of most investors becoming unbalanced and hence, rebalancing of the portfolio was essential, suggest experts.

“While it could be routine profit booking for short term investors, long term investors would be wary of price-performance stretching well over earnings growth. While fundamentals were put aside owing to the pandemic situation till date, currently their quarterly earnings are being given due importance,” Gopal Kavalireddi, Head of Research, FYERS told Moneycontrol.

What should investors do?

FIIs raising or reducing stake should not be the only parameter by which investors should track before buying or selling a share or investing in a company.

Experts advise investors to do their own study and pick stocks that also match their risk profile. Investors can use both technical and fundamental parameters to make their buy or sell decisions.

Under fundamental parameters one can track Cash flows, EPS, PEG ratio, leverage on the books, revenue growth as well as future CAPEX spends etc.

The reasons for buying, holding or selling any stock depends on the market participant – short term or positional trader, short term or long-term investor, they say. Based on the financial and portfolio positioning different actions can be taken.

“Besides fundamentals, there are technical parameters too that one track for making buying or selling decisions. One of the key parameters is the positioning of stocks relative to their respective 50, 100, and 200-day moving averages as well as the direction of each of those averages,” says Kavalireddi of FYERS.

“A trader or a positional investor can use 50-day moving averages to identify short-term entry opportunities and the 100/200-day moving averages to identify medium-term entry opportunities. Another technical parameter of importance is the price trend, both on the daily and weekly time frame charts,” he said.

Kavalireddi further added that investors can also track the put-call ratio of stock and index options, market breadth, ratio charts of stocks to indices etc. “While these parameters do not provide an outright buy or sell signal, they can help one in understanding market sentiment and market positioning,” he said.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.