FII's and investment

1. Topic: FII’s and Investment
Inputs by: S M Sakthi Prakaash
Date: 30.10.2014
1) How the investing pattern of foreign institutional investors changed since May 2014?
Since the government changed hands in May 2014, FIIs have been mostly bullish on Indian Markets. FIIs expect the new government to take the economy to different levels. FIIs have been increasing their stake in a number of Indian stocks and most of the stocks hit their all time highs during the year thus driving the Indian Indices to higher Indices. FIIs are still raising their stake in some of the companies which has shown good operating performance over the last few months
2) Do you think an investor should follow FIIs? What are the pros and cons of following FIIs?
Investors should never blindly follow the FIIs on any Investment. They should make their own analysis and use FII investment information as just additional information
Pros of following the FIIs:
 The company can be expected to be stable over a period of time
 Identification of emerging stocks and the Investor can be reasonably assured of his investment
 Even short term Investors can follow FIIs as the stock might spike if FIIs increase their stake in the stock
Cons of following FIIs:
 Sudden Events are not taken into account while following FII investments
 Profit taking could hit the stock at tipping points
 Even FIIs can go wrong at some times
3) What are the factors one should look into before investing in a stock in which FIIs are raising their stakes?
Some of the factors which an Investor must look into before Investing in these stocks are:
 Operating margins of the company
 Performance of the Company in Foreign Markets
 Seasonal Demand for the products of the company
 Performance of the stock for the past 6 months – 1 year as a big rise in the price of the stock over a short period may result in profit taking which could hit the stock temporarily
4) Under what circumstances can a stock give negative returns despite FIIs increasing their stakes?

2. It is seen that investors tend to invest in stocks where FII’s stakes are high as those stocks would be the emerging stocks in the market but circumstances where the stock is seen at very high level domestic investors tend to exit the stock to make some profit rather than waiting it to grow more. Another reason that stocks may give negative returns when any negative news is seen to impact on the stock, domestic investors sell their stakes where as FII’s are seen more strong in Fundamentals of the company.
5) From the attached list, can you suggest 2 stocks which can give positive return to investors in the next 24 months? Please explain your picks along with their target price.
Amtek Auto: (CMP – 165.25, Target – 240)
Amtek Auto has seen steady growth for the last couple of quarters and the growth is expected to remain steady for the next 1-1.5 years as the company expects growth in the two wheeler segment and passenger vehicle segment. US and German markets have been profitable for the organization and the company. The company is also on constant outlook for acquisitions and earlier acquisitions made in Europe have been profitable for the company.
ICICI Bank: (CMP – 1614.05, Target – 2300)
ICICI bank is the leading banks in Indian private banking sector, its Q2 earnings for FY14 was seen in line with the estimates and net profit was up by 15.2% year on year. Banks profitability has improved from past 5 years and is currently trading at discounted levels when compared to its peer. Net profit is expected t o increase and asset quality is expected to remain stable and may improve.