These stocks are hot favourites of FPIs even as they sell index heavyweights

• In Q2 FY23, Tata Steel, HUL, Bharat Electronics, ITC, Zomato were among the highest-bought stocks in the FPI list.
• Shares of index heavyweights like Reliance Industries, the top four IT giants and Kotak Mahindra Bank witnessed heavy selling by FPIs during the September quarter.
• FPI flows more than halved in the September quarter, which saw an infusion of ₹48,570 crore compared to ₹1.07 lakh crore in the previous quarter of June.
• Further, analysts believe buying will accelerate when the dollar index – currently at 106 – falls below 103, and there is a cool off in crude oil prices and treasury yields.

Foreign capital flows into Indian equities remain volatile, even though India has outperformed most other peers for a large part of this year. Foreign investors are largely betting on defensive stocks and those that are attractively valued. Some of their favourite stocks in the September quarter were Zomato, Hindustan Unilever, ITC and Tata Steel. However, they continued to sell index heavyweights during the same period.

Despite a revival in portfolio flows in July and August, foreign portfolio investor (FPI) inflows more than halved in the September quarter – investment dropped to ₹48,570 crore from ₹1.07 lakh crore in the previous quarter, shows data from Prime Database Group.

This resulted in the share of FPI holdings in the market declining to a 10-year low of 19.03% as on September 30, 2022, down by 17 basis points from 19.20% as on June 30, 2022.

“This further showcases the rise of domestic investors and the huge counter-balancing role they have played to foreign investors. To also put this in perspective, as on March 31, 2015, FPI share was 23.30% while the combined share of DII (domestic institutional investors), retail and HNI (high networth individuals) was just 18.47%,” said Pranav Haldea, MD at Prime Database Group.

Keeping aside the first half of November when FPIs poured in ₹28,888 crore, they have been selling aggressively in the last couple of months because of macro concerns and weak inflation data in India.

“FIIs sold heavily in the September quarter because they were not expecting inflation to come down. Also the dollar index was rising. However, now, with positive data coming in, FIIs have bought a good amount of equities in November so far. In the near future, the street is expecting inflation in the US to come down,” Shrikant Chouhan, head of equity research (retail) at Kotak Securities told Business Insider India.

Chouhan sees FIIs buying internet and software-based companies where earnings have come in strong. Also, “BFSI, capital goods and real estate are prime sectors where they are focusing and which will witness inflows in next six months,” said Chouhan.

In Q2 FY23, Tata Steel, Bharat Electronics, ITC, Zomato were among the highest-bought stocks in the FPI list.

Companies that saw the highest buying by FPIs in September quarter


Food delivery company Zomato, which debuted in the secondary market in July 2021, is also among FII favourites. FPIs bought shares of Zomato worth ₹8,057 crore during the quarter. Note that the company has erased 51% of its share value so far in 2022 due to constant losses.

“They are also buying companies where valuation is comfortable and where downside is protected like Zomato,” said Chouhan.

Further, analysts believe buying will accelerate when the dollar index – currently at 106 – falls below 103, and there is a cool off in crude oil prices and treasury yields.

“Real buying will come when the dollar index is trading below 103, if Brent crude starts below $90 and 10-year treasury falls below 3.50%,” said Chouhan.

Shares of index heavyweights like Reliance Industries, the top four IT giants and Kotak Mahindra Bank witnessed heavy selling by FPIs during the September quarter. Heavy sell off in these top IT companies have led to a correction of 10-40% in these stocks this year.

Companies that saw the highest selling by FPIs in July-September

There were 11 companies in which promoters, FPIs and DIIs have increased their stakes during the quarter, these stocks were – Astral, Uno Minda, Atul, Maharashtra Seamless, Share India Securities, Mirza International, Sarda Energy & Minerals, Meghmani Organics, Mrs.Bectors Food Specialities, NCL Industries and Poddar Housing & Development.

SEE ALSO: Whenever small caps trade at a discount to Nifty, they have given outsized returns: InCred Wealth
Buy on dips, say analysts, as Indian markets bounce back smartly in October