FPIs discover growth stories in select mid-caps

ET INTELLIGENCE GROUP: Though foreign portfolio investors (FPIs) sold Rs 30,000 crore of Indian equities in the December 2016 quarter, they showed higher interest in select midcap companies.

During the quarter, FPIs invested over Rs 5,000 crore in companies including Crompton Greaves Consumer Electricals, Indraprastha Gas ( IGL), Mahanagar Gas, Manpasand Beverage and PC Jeweller. The FPI stake in these companies increased by 1.5% to 8% during the quarter while it fell by 24.2% in the S&P BSE 200 companies.

These investors have shown interest in three types of medium sized companies.


The first category includes companies that appear to have a robust business model with relatively lower dependence on the general economic environment. For instance, Manpasand Beverages is expanding presence in tier two cities and rural areas where the penetration of fruit drinks is growing by 25% annually.

The company has priced products at a sizable discount to its peers. It plans to enter the Rs 10,000-crore carbonated drinks segment by setting up new capacities.

PC Jeweller, another midcap company, is benefited from the gradual shift of consumers to the organised sector from standalone jewellery shops.

The company has a market share of 6% in the organised segment. A focus on diamond jewellery offers better future growth prospects.

The second category is the companies based on business transition. Crompton Greaves Consumer, for instance, is turning into a consumer centric (B2C) company from the earlier business-to-business (B2B) model. The company enjoys sizeable brand loyalty in its key products, such as fans, but was unable to leverage it for other products. To address this issue, the new management plans to increase advertising expenditure.

Finally, FPIs have also shown interest in the companies which operate in businesses with high entry barriers and enjoy high market share.

These include SH Kelkar & Company and city gas distribution companies such as IGL and MGL. SH Kelkar has 20% market share in fragrance and flavour business.

IGL and MGL have a monopolistic business and offer volumes visibility due to increased consumer shift towards cleaner fuels because of regulatory push.