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On This Day - 25 MARCH 2019
FIIs or DIIs? Who Should You Follow?
Last week, I wrote to you about how foreign institutional investors (FIIs) have ramped up their focus on India and are propping the stock markets up.
However, at a time when FIIs have found renewed interest in the Indian markets, DIIs or domestic institutional investors are seemingly pulling back.
If you look at the chart below...you will see that while FIIs have pumped in more than Rs 230 billion in just the first twenty days of March, DIIs have been net sellers to the tune of Rs 115 billion in the same period.
The chart shows us that DII selling activity is the biggest it has been in over three years.
While FIIs and DIIs are moving in opposite directions, there's nothing in the economy that could suggest an improvement or downturn.
Why the big gap then?
After being net sellers for most of the last calendar year, FIIs are now finding value in India. FII purchases in March 2019 were the biggest since November 2017. The FII push may largely be fueled by amplifying liquidity in developed markets and controlled by the central banks of those countries. This has allowed them room to invest in riskier assets and geographies like India.
On the other hand, DIIs are cautious ahead of the elections and may be pulling out in anticipation of a post-election rally.
However, such a rally may not even materialize as the election outcome may already be priced in.
So, who should you as an individual follow, FIIs and DIIs?
The answer is neither.
While FII activity can be an indicator of market activity, one cannot base their investing decisions on whether FIIs are buying or not. The benchmark indices surged in the last calendar year, even without much FII participation.
As I have said repeatedly, it is best to go for a bottom-up approach.
Investors should place their bets only on companies that have strong fundamentals and are available at reasonable valuations.
And the smallcap space is exactly where such value buys are likely to be found.
For example, at the time of the market low a month back I had shared rebound opportunities in 4 quality small caps.
Of those, two rebound stocks have moved sharply up and are now beyond the buy zone - great news for those who pounced on the opportunity at the time.
Fortunately, the other two are still actionable!
While the BSE Sensex is within touching distance of its all-time high levels, the BSE Smallcap index is still trading more than 25% down from the highs seen in January 2018.
As I write this, I have over 20 fundamentally strong smallcap stocks in the 'Buy' position to choose from.
So, act now, and take advantage of the opportunity that is available in the best smallcap stocks today and ignore all the noise.
PS: Follow the 'smart money' and make sure you profit from these favourable market conditions. Get over 20 small cap recommendations here.
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