Why are FIIs interested in these Mid-Cap stocks?

Foreign Institutional Investors (FIIs) have been pouring a lot of money into India's stock market in recent years. In fact, the total FII investment in all types of instruments till date has been ₹15,30,394.43 crore! 

To put that into perspective, let's say you had ₹15,30,394.43 in your pocket. You could buy a fleet of Ferraris, a private jet, and a mansion in Beverly Hills. In short, you’d be 👇

Or, you could invest it in the Indian stock market and watch your wealth grow. 

Let's start by understanding that the world of investing is fairly diversified. Different types of people invest in stocks for various reasons and in different ways. These people have various objectives, approaches, and levels of risk tolerance.

There are several types of investors in the Indian stock market, each with their own goals, strategies, and risk tolerance. Here are a few of the most common types:

Retail Investors, Institutional Investors, Foreign Institutional Investors (FIIs) and Foreign Portfolio Investors (FPIs), High Net Worth Individuals (HNIs), Day Traders, Swing Traders, Long-Term Investors.

Along with them, there are other types of investors, such as value investors, growth investors, dividend investors, speculators, and arbitrageurs, but we won't go into detail about them now.

Now that you are familiar with the different types of investors, it's time to recognise the essential role that foreign institutional investors' investment plays in the Indian markets.

Significance of FII Investment in the Indian Markets

Foreign institutional investors (FIIs) are foreign entities investing in the stock market. They are essential to the expansion of India's economy. They bring in foreign money which diversifies the market, and improves the liquidity. For India's economy to be sustainable over the long run, FIIs must continue to invest.

Here are a few reasons why FIIs choose to invest in India:

1. Growing Middle Class and Youthful Population: The expanding middle class with higher spending power drives demand for various goods and services, while the youthful workforce boosts economic productivity and innovation, making India's market appealing for investments.
2. Diverse Economy: India's economy is characterised by a wide range of sectors and businesses, providing investment opportunities across various industries.
3. Constantly Improving Business Environment: The Indian government has taken measures to enhance the business environment, making it more favourable for foreign investments.
4. Strong Fundamentals: With a youthful population, a growing middle class, and an increasing savings rate, India's economic fundamentals are robust.

Let's get started with the section of this article that you have been waiting to read: the top five stocks whose FII holdings have changed by a significant percentage.

To provide you with a brief overview, I've identified these stocks using the screening tool provided by Ticker by Finology. This tool functions much like the filters you apply when shopping online. By inputting specific details and requirements, you can effortlessly obtain results that align with your preferences.

It's important to note that I've added an additional filter to the process. This filter makes sure that only companies having a market capitalisation of more than ₹5000 crore, the Mid-Cap companies, are taken into account. This action intends to reduce the risks related to small companies so that more established companies may be the focus.

Top 5 mid cap stocks with maximum percentage change in the FII Holding

Please go through the table below, which lists the top five companies.

Let's examine each of the five companies separately.

1. Patanjali Foods

Brief about Patanjali Foods: One of India’s largest FMCG companies in the edible oil sector, Ruchi Soya Industries, is also one of the largest fully integrated edible oil refining companies in the country.

It is a member of the Indian conglomerate Patanjali Group and has a varied presence in the packaged food and FMHG (Fast Moving Health Goods) market. 

Let us quickly look at a few Pros and Cons of the company:

Strengths:

• The company has shown a good profit growth of 24.57% for the past 3 years.
• They have a strong degree of operating leverage.
• Efficient Cash Conversion Cycle of -30.59 days.
• Promoter holding is high at 73.82%.

Weakness:

• The company has shown a poor revenue growth of -25.06% for the past 3 years.
• Poor ROE of -27.08% over the past 3 years.
• Poor ROCE of -36.90% over the past 3 years.
• Tax Rate is low at -0.03.

Change in shareholding pattern:

FII holding has significantly gone up from 0% in March 2022 to 9.8% in July 2023.

One of the promoters sold 7% of its stake through an offer for sale, ensuring that the firm satisfied the minimum public shareholding requirements.

Next up is,

2. Gravita India Ltd

Brief about Gravita India: Gravita India, founded in 1992, is a leading company in the Gravita Group focused on recycling and smelting lead to produce lead metal and related products.

The company has a subsidiary called Gravita Exim, which specialises in offering complete solutions and advisory services for engineering and design to secondary lead companies. Together with Gravita India, they cover everything from establishing plants to creating value-added lead products in the lead metal market. 

The firm has a solid basis because of its strategy of building operations in various areas throughout the world and sourcing raw materials from around the globe.

Let's briefly look at the several advantages and disadvantages of the company:

Strengths:

• The company has shown a good profit growth of 65.21% for the past 3 years.
• The company has shown a good revenue growth of 29.13% for the past 3 years.
• The company has been maintaining a healthy ROE of 25.81% over the past 3 years.
• The company has been maintaining a healthy ROCE of 20.27% over the past 3 years.
• The company’s PEG ratio is 0.27.

Weaknesses:

• Stock is trading at 8.63 times its book value, indicating that investors have high expectations.
• Promoter holding has decreased over the last quarter: -6.52%.
• Tax rate seems low at 12.99.

Examine the historical trend of the shareholding pattern👇.

There is a worrying decrease in promoter holding, and simultaneously, FII holding has risen from 1.21% to the current level of 9.32%.

Now let us transition ourselves from a lead-focused enterprise to a technology-oriented firm now.

3. Syrma SGS Technology

Brief about Syrma SGS Technology: Technology-focused engineering and design company that specialises in turnkey Electronics Manufacturing Services (EMS).

The company serves industries like industrial appliances, automotive, healthcare, consumer products, and IT.

Through idea, co-creation and product realisation, the business offers Original Equipment Manufacturers (OEMs) complete services and solutions from the early product concept stage to volume manufacturing.

Coming to the strengths and weaknesses:

Strength:

• The company has shown a good revenue growth of 41.94% for the past 3 years.
• The company has an efficient Cash Conversion Cycle of 33.26 days.

Weakness:

• The company has shown a poor profit growth of 7.83% for the Past 3 years.
• The company has a negative cash flow from operations of -60.72.
• The company is trading at a high PE of 149.69.
• The company is trading at a high EV/EBITDA of 67.35.

Change in shareholding pattern:

The promoter holding has remained the same. FII holding has increased. Another interesting thing to take note of is that Syrma SGS Technology Limited has acquired a 51% equity stake in Johari Digital Healthcare Limited (JDHL). It is a Jodhpur-based ODM design company in the medical devices business and the promoters of JDHL are technocrats with a focus on technology and design. Their expertise complements Syrma SGS's manufacturing and marketing reach which could prove to be beneficial for the company in the years to come.

Now, let's take a look at a company that holds a dominant 55% market share in the seamless pipes segment.

4. Maharashtra Seamless Ltd.

Brief about Maharashtra Seamless: The company was established in 1991 near Mumbai to bridge the gap in the seamless pipe market, which heavily relied on imports.

The company's distinguished clients comprise prominent names like Indian Oil Corporation Ltd, BHEL, Reliance Industries Ltd, NTPC, and Larsen & Toubro, among others. In the infrastructure sector, notable clients include Adani, DLF, IGL, and Unitech.

The company is also engaged in power generation.

Company Strengths:

• The company has shown a good profit growth of 242.99% for the past 3 years.
• The company has shown a good revenue growth of 29.68% for the past 3 years.
• The company has significantly decreased its debt by 388.64 Cr.

Weaknesses:
No noteworthy weaknesses are present to highlight.

Change in Shareholding Pattern:

Promoter holding has remained more or less the same. FII holding has increased. 
Now, turning our attention to the final company on the list.

5. Vedant Fashions Ltd.

Brief about Vedant Fashions: Popularly known as Manyavar, Vedant Fashions Ltd. saw a change of 2.86% in the FII holding. It is India's leading company in men's wedding and celebration wear segment. Its 'Manyavar' brand is a category leader in this market. 

The company has created a robust network and introduced brands to meet the growing demand for wedding attire. 

The company's strong relationships with vendors and artisans have helped establish a dominant position in a once unorganized market.

Coming to the strengths and the limitations of the company:

Strengths:

• The company has shown a good profit growth of 21.94% for the past 3 years.
• Company has been maintaining a healthy ROE of 25.38% over the past 3 years.
• Company has been maintaining a healthy ROCE of 36.57% over the past 3 years.
• Company is virtually debt free.

Limitations:

• The company has shown a poor revenue growth of 13.96% for the past 3 years.
• Tax rate is low at 0.
• The company has a low EBITDA margin of 0% over the past 5 years.
• The company is trading at a high EV/EBITDA of 42.14.

Moving on, let us look at the shareholding pattern:

These were the top 5 Mid-Cap stocks which witnessed a significant FII holding change in the past one year. 

The Bottom Line

The stock market is a powerful tool that can help you achieve financial freedom. However, it's crucial to keep in mind that it is not a get-rich-quick scheme. Being a successful investor requires time, effort, and education, but by comprehending the effects of FII investments, you may get a competitive edge and make wise investment choices.

Here are some key takeaways:

• FII investments can have a significant impact on the price of a stock.
• When FIIs buy a stock, the price tends to go up. When they sell, the price tends to go down.
• The trick to benefiting from FII investments is to find fundamentally sound companies that have a consistent and stable FII shareholding.
• By adding these companies to your watchlist and staying up-to-date on their financial performance, you can be one step ahead of the market and make informed investment decisions.

So, what are you waiting for? Start researching today!

*Disclaimer: The stocks and companies discussed above aren't a recommendation from Insider by Finology and shall not be construed as a replacement for professional advice. Consult a professional or conduct the necessary research before making investment decisions.