Diversed cos stand to gain, going forward

In the past one year, beginning the September 2008 quarter, media and entertainment companies have been losing favour with foreign institutional investors (FIIs). The extent of fall in FII stake in the sector has been as huge as 50%. For instance, in Wire & Wireless (India), the FII stake has decreased from 11.88% in the September 2008 quarter to 0.88% in the September 2009 quarter. And this decrease in the FII stake is juxtaposed with not-so-encouraging performance of the company.

Wire & Wireless (India) has been making losses. Its losses have almost doubled from Rs 25 crore in the September 2008 quarter to Rs 41 crore this September quarter. There are two factors that have made it difficult for investors to choose media and entertainment companies as good investment avenues. First, glaring obscurity in the flow of earnings. Second, whatever these companies are earning, it has been on a weak growth.

The quantum of decrease in the FII stake has been the most in companies related to general entertainment, while companies related in news business continue to be popular with foreign investors. Companies like Pyramid Saimira Theatre, Inox Leisure, and UTV Software have all seen a dramatic drop in foreign institutional holdings. In Fame India, for instance, the FII stake is now down to 0.9% from a high of 15.2% in September 2008. Undue dependence on films and a weak business model that hardly generates much free cash flows seems to have compelled these investors to take their take to other sectors.

Companies related to news business and fairly diversified businesses have seen an increase in the FII stake. These companies are IBN18 Broadcast, Sun TV Network, and Jagran Prakashan, among others. IBN 18 Broadcast saw an increase in the FII stake from 3.59% in the September 2008 quarter to 9.07% in the September 2009 quarter. This shows that these FIIs are choosing companies, which have a diverse presence (news broadcast, entertainment, newspaper, content providing) and have not concentrated business interests.