FIIs are Buying these 5 Smallcap Stocks. Take a Look...

After outflows worth Rs 1.2 trillion (tn) in 2022, foreign portfolio investors (FPIs) returned as buyers in 2023, buying Indian equities worth Rs 1.7 tn.

This was the highest FPI inflow since 2020 when buying stood at Rs 1.7 tn.

This came on the back of improving macros, markets on a record-high streak, declining inflation, hopes of a rate cut in 2024, and the possibility of the incumbent government returning for a third term in the general elections in 2024.

In the December quarter, this significant increase in FII flows follows a notable Rs 90 billion (bn) inflow in November, reversing the trend of selling observed in September and October.

Let's look at the top five smallcap stocks where FIIs have increased their stake between the December 2023 quarter.

#1 Lancer Container

Leading the list is Lancer Container.

The company provides shipping and logistics services in India and abroad. Its primary business is ocean transport services of intermodal containers by container ships.

The latest shareholding pattern of Lancer Container Lines shows that foreign investors (FIIs) added an 11.9% stake in the company in the December 2023 quarter.

FII holding went up from 11.5% to 23.5%. Before this, FIIs were on a selling spree, reducing exposure for the past four quarters.

This can be attributed to the acquisition of Transco Logistix Worldwide in November 2023.

Lancer Container Lines acquired 750,000 equity shares for Rs 10 per share equity share capital of Transco Logistix Worldwide.

The purpose of this investment is to add a vertical business line for the company in the logistics industry.

Apart from that, in December 2023, Lancer Containers integrated its subsidiary, Argo Anchor, in the city of Dubai.

This strategic move marks a milestone for the company as it extends its services to cater to the dynamic shipping needs and requirements of the Middle East region.

Looking into the company's finances, Lancer Container Lines revenue decreased by 26.8% from Rs 2.3 bn in Q2FY23 to 1.7 bn in Q2FY24. During the same period, net profits decreased by 10% from Rs 158.6 m to Rs 142.1 m.

In the future, the company intends to continue expanding its global presence in the international market.

For more details, see the Lancer Container Lines company fact sheet and quarterly results.

#2 Sterling and Wilson

Second on the list is Sterling and Wilson.

Sterling and Wilson is a leading engineering, procurement and construction (EPC) services provider.

It undertakes large-scale solar projects and manages all aspects of a project from design to construction to maintenance. It's a one-stop solution provider for solar projects.

The company is a part of the Shapoorji Pallonji group and provides services in 24 countries.

In the December 2023 quarter, FIIs significantly increased their holdings in the company, raising their stake from 3.4% in the September 2023 quarter to 11.9%.

This can be attributed to the spike in EPC orders.

In the quarter ending December 2023, foreign institutional investors (FIIs) substantially increased their holdings in the company, elevating their stake from 3.4% in the preceding September 2023 quarter to 11.9%. This surge is attributed to a substantial increase in EPC orders.

On 26 October 2023, the company announced the receipt of new orders totalling Rs 28 bn in the September 2023 quarter.

This comprised Rs 26.4 bn in EPC orders (including letters of intent) from India.

As of 21 October 2023, the cumulative unexecuted order book amounted to Rs 68.4 bn, primarily dominated by domestic projects (98%), with Australia (1.4%), and the USA (0.6%) contributing to the remainder.

In November 2023, the joint venture Sun Africa LLC, involving Sterling & Wilson Renewable, secured an order worth US$ 2.2 bn in Nigeria's power sector. The unit in collaboration with the Nigerian government, announced plans to enhance the country's power landscape.

Additionally, the company reported a robust Q2 performance with a 149% year-on-year rise in revenue to Rs 7.6 bn.

Despite a net loss of Rs 545.1 m, there was a significant improvement from the Rs 2.9 bn reported in Q2FY23.

Looking ahead, the company aims to increase its renewable energy capacity and extend its presence in the international markets of Southeast Asia and Africa.

For more details, see the Sterling And Wilson Solar company fact sheet and quarterly results.

#3 Texmaco Rail

Third on the list is Texmaco Rail.

Texmaco Rail and Engineering is a part of Adventz group and is involved in manufacturing freight cars, auto car wagons, loco bogies, coach bogies, hydro-mechanical equipment, and steel casting.

It is also involved in designing, supplying, installing, and commissioning mainline railway and metro tracks. This can be attributed to order wins.

The Ministry of Railways has awarded an order to the company for the manufacturing and supply of 3,400 BOXNS waggons valued at Rs 13.7 bn.

The latest shareholding pattern for Texmaco Rail reveals that FII have increased their stake from 2.3% in the September 2023 quarter to 9.6% in December 2023.

Texmaco has an order book of around Rs 80 bn. This is almost twice the size of its current marketcap of Rs 44 bn.

This could indicate the company has strong revenue prospects, provided it can efficiently fulfil its orders, particularly the Rs 54 bn in rolling stock.

The company is currently producing around 500 wagons per month for Indian Railways and aiming to consistently exceed 500.

Also, in November 2023, the company launched its Qualified Institutional Placement (QIP) to raise Rs 7.5 bn, which included a green shoe option of Rs 2 bn.

Texmaco's consolidated revenue from operations saw a robust growth of 66% YoY, amounting to Rs 8 bn.

The company reported a 70% YoY rise in net profit to Rs 200 million (m) in the quarter.

This exceptional performance marks the stock's third consecutive year of success, ranking as the best annual performance since its listing in 2011.

Going forward, the company is poised for a 25-30% production increase. Further, it is also exploring opportunities in related domains such as the 'Modern Train Communication System' and 'Kavach'.

For more details, see the Texmaco Rail company fact sheet and quarterly results.

#4 Sapphire Foods India

Fourth on the list is Sapphire Foods India.

Sapphire Foods India, previously known as Samarjit Advisors Private Limited, is a leading Yum franchise operator in the Indian subcontinent with a presence in India, Sri Lanka, and Maldives.

It is engaged in the franchise business of KFC and Pizza Hut restaurants in India.

For the December 2023 quarter, FIIs have increased their stake in the company to 29.9% from a mere 23.7% in the September 2023 quarter.

This positive inflow can be due to its strong expansion plan.

Sapphire Foods India aims to double the pizza store count in four years, a slight shift from its previous three-year goal.

Also, the management is optimistic about a market upswing, predicting a resurgence in demand over the next 12-18 months.

While pizza has long been a favourite choice for many, its position at the top of the food hierarchy has of late been challenged by the emergence of various competitors and changing consumer tastes.

For the September 2023 quarter, the company reported a 14.2% rise to Rs 6.4 bn from Rs 5.6 bn in the year-ago quarter.

It reported a net profit of Rs 153 m, 43% lower from Rs 270 m in the same quarter last year, due to lower realisation.

In Q2 the company added 36 restaurants (23 KFC, 9 Pizza Hut in India and 4 Pizza Hut in Sri Lanka), taking the total restaurant count to 814.

Going forward, the company is planning to strengthen its multi-brand quick-service restaurant platform across India.

For more details, see the Sapphire Foods India company fact sheet and quarterly results.

#5 Tiger Logistic

Last on the list is Tiger Logistics.

Tiger Logistics was established in 2,000 by a first-generation entrepreneur, Mr Harpreet Singh Malhotra.

He had prior experience in handling the logistics of Hero MotoCorp and was instrumental in bringing BMW Bikes to India.

The company is a third-party logistics (3PL) player. It offers customised services in ocean and air freight forwarding, project cargo handling, customs clearances, warehousing, and transportation.

In the December 2023 quarter, the company witnessed a notable increase in its FII stake, rising to 7.4% from 1.1% in the September 2023 quarter.

This can be due to the company securing a tender from Hindustan Petroleum Corporation Ltd for logistics services.

The BSE-listed entity has been awarded another government tender from Hindustan Petroleum Corporation, marking a significant milestone to enter the petro segment.

Recently, the company secured a work order from BHEL to provide custom clearance, forwarding, transportation, and warehousing services to the state-owned entity.

For the September 2023 quarter, the company reported a 70.6% YoY decline in revenue at Rs 535.8 m, while the net profit came in at Rs 32.2 m, down 59.3% YoY.

In the future, the company intends to concentrate more on the domestic market and secure additional orders.

For more details, see the Tiger Logistics company fact sheet and quarterly results.

Snapshot of FII Stake Buy Trends on Equitymaster Stock Screener

Here's a list of rising FII holding stocks on Equitymaster's stock screener.

Please note these parameters can be changed according to your selection criteria.

Conclusion

Investing in stocks that foreign institutional investors (FIIs) are buying can be an interesting strategy, as FIIs often have access to extensive research and resources, and their investment decisions can reflect a level of confidence in the company's prospects.

However, FIIs often have specific objectives or constraints that may not align with individual investors' needs.

Their investment horizon, risk tolerance, and goals may differ from yours, so blindly following their investments may not be suitable for your portfolio.

Further, by the time FII investments are publicly disclosed, the stock price may have already moved, potentially reducing the upside potential and increasing the risk.

FII investment activity can provide valuable insights it should be just one part of your investment decision-making process.

Conduct your research, align your investments with your financial goals and risk tolerance, and consider the broader market context.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...