Swinging with the FII trend - Don't do it

Foreign Institutional Investors (FII's) are very agile and short term investors who just look for profitable opportunities across all major global markets. This enables them to spot outperformers more quickly and efficiently. However, this quality shouldn't be taken as an investment guide for retail investors as it can be detrimental for them. 

Let us hear it from our analysts Mr. Dev Roy and Mr. Souvik Dey. The interview was taken by Mr. Rahul Paul - Chief Research Officer, WODS

Question 1: Mr. Rahul - Most of the retail investors follow the trading activities of FII's in order to take investment decisions. So, why are you against it?

Answer 1: Mr. Dev Roy - No! we are not against it. We are against those investors who doesn't have any experience in following the investment pattern followed by FII's. They are very nimble-footed investors who make their decisions very fast. This enables them to spot outperformers very quickly but the pitfall is they are equally quick in selling the stock without any prior notice. This endangers the portfolio of retail investors and creates a potential trap for those traders who follows them blindly.

Question 2: Mr. Rahul - Ok! so you want to say that FII's are also quick in selling stocks and this creates a potential risk for small investors. My next question to Mr. Dey is can you give an example of such a scenario which has led to a loss for retail investors?

Answer 2: Mr. Souvik Dey - Yeah ofcourse! There are plenty of examples where FII's has broken the fortune of a stock. The example that comes to my mind immediately is that of a technology company known as Vakrangee Limited. The fortune of this stock changed twice within a span of 2 months backed by heavy FII buying followed by more heavy FII selling. The heavy FII buying lifted the stock from its 52 Wk-low in Jun 2015 to 52 Wk-High in Aug 2015. However, one fine morning, after having a breakfast tea with their beautiful wives, the retail investors found that the stock gave a huge gap down opening and the stock finally broke its 52 Wk-low on the downside making a double bottom. This wiped out several lakhs of investor's wealth. So, we must be very careful while taking position on a stock solely relying on the buying activities of FII's.

Question 3: Mr. Rahul - Ok! so now let's come to the main question for our readers. How can we identify stocks in which FII selling is taken place. Okay so Mr. Dev Roy and Mr. Souvik Dey can you answer this?

Answer 3: Mr. Souvik Dey and Mr. Dev Roy - The answer is both yes and no!! 😆😆. Let us explain in details.

See Mr. Rahul, to understand how to follow the FII buying and selling activities in a particular stock there are two ways. The first one is by analyzing the quarterly financial statements published by the company where they disclose their shareholding pattern. The downside of this process is that you will get to know about the FII activities after the trend is already over. Fundamental analysis is an integral part of value investing but it is always late. We came to know about the weak fundamentals of Maruti Suzuki only after 2019. The second way in which we can follow the FII's is by following the price action. We always say to our clients that "Price tells everything". 

The share price of Maruti Suzuki began to fall in 2018 only and we had already warned our clients that there is something wrong with this company. So, we think that traders must pay equal attention to technical analysis also while following FII investment dynamics.

Disclaimer: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. It is for educational purposes only.

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