3 Smallcaps with Rising Institutional Stake for Your Watchlist 

Dear Viewers

Indian markets have shown some correction this year after a spectacular post pandemic rally.

One of the reasons is for this correction is exit of FIIs, with the rise in the interest rates in the US.

While exit of FIIs that fall under the category of institutional investors is making all the headlines, in today's video, I'm going to share the names of some stocks where fundamentals look strong, the earnings have improved despite all the turbulence at the macro level, and most importantly, the overall institutional stake, including that of FIIs in some cases, has gone up. So let's dive in.

First things first.

What is the significance of presence of institutional investors in a stock?

Well, Institutional investors deal in huge amounts of money, come with experience and are considered savvier than an average retail investor. The category of investors includes venture capital, mututal funds, alternate investments, pension funds, insurance companies and FIIs.

They have access to managements unlike a retail investors and are likely to have better insights about the industry and companies. It is for this reason that money they bring in is called smart money.

When they buy or sell a stock, the positions they take are huge due to the sheer amount of money they manage. This could lead to sharp swings in the price of the stock. When they buy stakes, the stocks could get rerated or increase in price. When they sell stakes, the price could witness sharp correction leading to derating.

The trend of institutional stake in a stock is specially interesting to track when markets sentiments are uncertain or weak.

During such times, these investors, just like others, move with caution.

If they increase their stake, or buy a particular stock, it could be a reflection of confidence in a particular business or management. A stock with higher institutional ownership is also likely to have better corporate governance due to the kind of scrutiny it is under.

The downside of large institutional holding could be a sharp correction in the stock when they decide to dump the stock.

Just like other tools that I have shared in my past videos, this is a trend that should not be used in isolation. This is just a screening tool, a starting point.

When you look at the trend of institutional stakes, you also need to keep a tab on other parameters such as fundamentals and valuations for the stock and the busineess. It further helps to know what the biggest insider, i.e, the promoter is doing with the stock.

So I recently did this exercise and came across some names that I am keeping in my watchlist.

These are the stocks where the institutional holding in the latest quarter is higher than a year ago and on a sequential or quarter on quarter basis as well.

For this exercise, I have considered stocks that have a marketcap of less than Rs 10 bn. Because this is a category where the rerating potential can be the highest with the entry of big investors.

I have considered stocks that are not just being lapped up by institutions, , but where the promoters stake remains high as well. And I have narrowed results to stocks where share price has either witnessed a sharp correction amid the recent volatility, or where valuations on a PE basis do not look exorbitant. I have further weeded out stocks with high debt to equity ratio, or with promoter pledging.

Moving on to the list....

The first stock on the list is Nahar Polyfilms. It belongs to the same group as Monte Carlo, a group known for Oswal Wool brand. The company makes BOPP films, which are used in flexible packaging in both domestic and international markets. The positives in the company are expected improvement in the operational backed by increase in scale of operations and better realisations with increasing contribution from value added products.

The stock is down 33% from its 52 week high, trading at a PE of 10 times. The stock has witnessed an increase in stake from both FIIs and promoters, on a sequential and year on year basis.

The second candidate is Pix transmissions. It's a leading manufacturer of Belts and related mechanical Power Transmission products in India. Its products find applications in diverse industries viz. auto, agriculture, cold storage, food processing, oil and gas, manufacturing sector, textiles, pharma among others. The key raw material is rubber.

The stock has witnessed buying from the FIIs in the latest June quarter, and both institutional and promoter stakes in the company have increased on a sequential and year on year basis.

The third and the last on this list is RPG Lifesciences. The company manufactures APIs under categories such as immunosuppressants, anti psychotic, anti helmentics and anti convulsants among others. It is also into formulations across 10 therapeutic areas. Domestic and international formulations account for 65% and 17% of revenues and the rest of the contribution is from APIs. The company has witnessed growth higher than the industry rate. The balance sheet is debt free. And contribution from new products stands at a healthy 19%.

The stock is down 21% from 52 week high. It's trading at a PE of 19 times. It has witnessed a rise in both FII and promoter stake in June quarter.

The company has reported consistent growth in the operating profits over last 5 years.

I would strongly recommend to not treat these as stock recommendations. But do include them in your watchlist for further study.

With this, I have come to the end of the video.

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Thank you for watching. Goodbye.