Stocks with lower ‘FII risk' :: Business Line

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Is the high volatility caused by FII investments keeping you away from the market? You don't have to stay out for fear of FII dumping the stocks that you hold. Here are some sectors that are either under-owned by FIIs or where their stakes are not high enough for them to upset prices.

In general, FII stakes are not high (relative to the total holding) in sectors that are highly regulated or those held by the government with less free-float. Stocks in the chemicals and fertilisers sector top this list. These sectors together accounted for only 0.5 per cent of FIIs' total allocation in the BSE-500 stocks as of March 2011, marginally higher than their holding in 2007.

Natural resource/mining companies such as Coal India or NMDC are examples of government-owned assets that have limited FII holding. Notably, all these sectors, mining, fertiliser and chemicals have all done well, beating the market by a significant margin in the last 4 years.

FIIs do hold the current favourites such as FMCG or consumer durables as well as the pharma space.

While they are not really under-owned the allocation given by FIIs to these sectors are lower than the weights to these sectors in BSE 500. The allocation to the FMCG space for instance was between 2-4 per cent in the last four years.

Such consistency was visible in the pharma space as well. FIIs' diversified nature of holdings and consistency in holdings make these sectors relatively less prone to FII activities.

Aside of sectors, investors can also look out for stocks with quality fundamentals, which, by way of sheer consistency in FII holdings and their large size, may be less prone to FII-triggered volatility.

This includes stocks such as ITC, Tata Power, Axis Bank, CRISIL and Cairn India, in which FII holding changed by hardly 1 percentage point in the last four years and which have delivered well over 20 per cent compounded annually