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Suresh Krishnamurthy

THERE appears to be a certain alluring quality to large-cap stocks that makes them irresistible to foreign institutional investors (FIIs).

Over the past two years, FIIs have been falling over each other to court such stocks.

At the end of March 2005, close to 75 per cent of the value of FII holdings were invested in stocks with market capitalisation in excess of Rs 10,000 crore. The proportion was 44 per cent at the end of March 2003.

The value of FII holdings at the end of March 2005 was about Rs 2,20,000 crore. One-third of this amount was held in five stocks — Infosys Technologies, Reliance Industries, ICICI Bank, HDFC and ONGC. However, the number of stocks in which FIIs hold a stake has gone up. They now hold a stake of more than Rs 100 crore in 145 stocks compared to 45 at the end of March 2003.

Leading mid-cap stocks preferred by FIIs include Zee Telefilms, Gujarat Ambuja, Reliance Energy, M&M and ACC. Hindustan Lever and Tata Motors, which were among the top 10 holdings at the end of March 2004, are now out of the list.

This should not be a cause for concern for investors because the quantum of shares held by FIIs in these two stocks has not changed. The change is mainly due to poor relative price performance of the stocks of HLL and Tata Motors.

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