Aug 17: An overdoze of vitamins can have its own repercussions. Take the case of FII investment in the secondary market. Their sheer money power has pushed the prices of several scrips to their all-time highs. In tandem, even the sensex has gone up. But, FIIs in spite of their deep pockets, have their limitations. They cannot go on a stock accumulation spree as the RBI guidelines forbid their holdings in any company crossing the 30 per cent limit. As soon as FII investments cross this threshold, the RBI issues a warning.

What happens then is clearly illustrated in the case of HDFC. The stock which was hovering around Rs 2,100 during the end of last year, was available at Rs 3500 in June. The jump has been very fast during the first week of July and on Friday July, 11, the stock touched an all-time high of Rs 4855. The following day it was reported that the RBI had banned further purchases by foreign investors in HDFC as the FII holding had reached 30 per cent. And the rest is history. Since then, the stock has lost Rs 1,400 from its peak, showing a drop of more than 30 per cent within a short span of four weeks. The drop in share price was more because RBI asked some FIIs to shed their excess holding of around 2 per cent which was acquired despite the central bank's warnings.

Taking a cue from the HDFC case, everyone would like to find an answer to one question -- Which are the other stocks where FII investments would soon touch the 30 per cent limit?

Answering this question would be a difficult task as only RBI has the information of FII holdings. Since it is a highly price sensitive information, announcements are made only when the prescribed limits are reached.

But an idea of FII holdings could be taken from the RBI release where it disclosed the names of companies where the FII holdings have touched 24 per cent. The names included WS Industries, HDFC, Salora International, Infosys, Carrier Aircon, Mastek, MSL Limited, PVD Plast, Jaiparabolic Springs, Satyam Computers, Modiluft, Zee Telefilms, Infosys, Maral Overseas, Unitech Limited, Essel Packaging, Polyflex, Nagarjuna Construction, Max India and Patheja Forgings.

FIIs holdings in HDFC, Carrier Aircon, Infosys and Mastek have touched the limit. For investors, the price movements of these stocks should give, at least, an approximate idea of FII holdings in the rest of the companies.

In the prevailing bullish scenario, if FIIs have made further purchases in these stocks, the stock prices of these companies, logically, should have moved up.

But this has not happened in all the cases. In fact, share prices of many companies have fallen sharply. As against a level of Rs 70 in last December, MSL Limited touched a low of Rs 27 and is presently available at Rs 42. PVD Plast dipped below par. Jaiparabolic Springs is down by 50 per cent to Rs 15. Other stocks which have declined are Maras Overseas, Polyflex, Nagarjuna Construction, Max India, Patheja Forgings. This shows that, FIIs seem to have reduced their exposures in these companies. Two stocks -- Salora International and WS International have gained, though marginally.

This leaves four companies -- Satyam Computers, Essel Packagings, Zee Telefilms and Unitech Limited. While Satyam Computers moved from Rs 32 in last December to the current level of Rs 153, Essel was up by 95 per cent to Rs 151 during the same period. Zee Telefilms and Unitech have also gained over 80 per cent during this period. A smart jump in share prices is a pointer towards a higher FII holdings. Probably, in most of the cases, it is close to the prescribed limit of 30 per cent. Although these companies operate in different sectors, one factor would be common. If the FIIs holdings reaches 30 per cent, the upward journey would be at least, halted immediately, if not reversed.

Considering these factors, especially, the change in market sentiment, profit booking becomes necessary. The sensex seems to have ran out of steam which can be mirrored in a 300-point fall from its peak in the last couple of days, a sign of trend reversal. If the announcements of FII limits are being made in a downtrend, the impact could be more damaging. Taking into account all these factors, profit booking appears a better option.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.