Their activities can help one gauge the direction of the market. If one understands their investment flow, one can gain many insights about potential opportunities and market movements.
Unlike short-term traders, DIIs often hold investments for longer periods, providing stability to markets and possibly better results to investors. Their resources allow for extensive research and analysis of investment opportunities.
The buying story
The BSE Sensex has been on an upward ride for quite some time. The growth has not been anything less than historical.
In October 2020, the Sensex was around 40,000. And in September 2024, it breached the 85,000 mark when it hit 85,978, an all-time high.
No wonder money has been flowing into stocks.
For instance, let’s just focus on the last year and a half. If you look at DIIs’ fund flow data, the buying spree is very evident.
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At times like these, it makes a lot of sense to know where these DIIs are investing their money. After all, it may throw up a great coattailing opportunity!
Here are three stocks that have turned out to be DIIs’ favourites based on their holdings (as of September 2024).
PVR Inox Ltd
PVR Inox Ltd (PVR) is India’s largest and most premium film exhibition company. The leader of the multiplex revolution in India continues to lead with a persistent focus on innovation and operational excellence to democratise the big-screen movie experience.
With a market capitalization of ₹15,806 crore, the company saw a jump in sales from ₹3,086 crore in March 2019 to ₹6,107 crore in March 2024. It is an absolute jump of around 98% and a compounded sales growth rate of 15%.
Earnings before interest, taxes, depreciation, and amortization (Ebitda) grew from ₹587 crore in 2019 to ₹1,810 crore in 2024, making a CAGR of 25%.
However, one noteworthy point is that even with an Ebitda of ₹587 crore in 2019, the profit after tax (PAT) was ₹189 crore. But cut to 2024, with an Ebitda of ₹1,810 crore, the company made losses of ₹33 crore.
The company had a return on capital employed (RoCE) of 18% in 2019, which dropped to 5% as of March 2024. No wonder the company has not been paying any dividends.
One of the reasons for this decline could be attributed to the fact that entertainment as an industry has seen a tough time since the pandemic.
A look at the stock prices for the last five years could help one understand this better.
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The sharp drop you see around 2020 is the pandemic raising its ugly head and breaking the stock’s growth streak. The stock prices were ₹1,795 in October 2019 and are currently at ₹1,600, which is a drop of 10% in five years.
The stock’s current PE (price-to-earnings) is not available on screener.in.
Despite all these challenges, the stock still catches the fancy of DIIs, with them holding a little over 38% of the total available equity shares at PVR Inox.
Amongst the top three, ICICI Prudential Technology Fund holds 7.06%, Nippon India Balanced Advantage Fund holds 8.98%, and SBI Technology Opportunities Fund holds 3.79%.
It seems that reruns of old classics and millennial cult hits have charmed not only the audiences but also these DIIs.
Reliance Industries Ltd
With a market capitalization of ₹18.36 trillion and diversification that is across verticals, this company needs no introduction.
Oil, retail, broadband, entertainment, manufacturing, gas, telecom, media… the list goes on!
The company’s sales grew from ₹5.68 trillion in March 2019 to ₹8.99 trillion in March 2024, which is an absolute growth of 58% and a compounded growth of around 10%.
The launch of Jio in the telecom sector played a big role in this jump, as its subscriber base grew to almost 480 million in September 2024.
The company’s Ebitda has grown from ₹84,250 crore in 2019 to ₹1.79 trillion in 2024. That is a CAGR of 14%.
Profits grew at a compounded rate of 12% in the last five years from a PAT of ₹39,837 crore to ₹79,020 crore.
The company has recorded a current RoCE of just 9.61%, which seems low when compared to industry peers. The industry median is 21.45%, and the highest in the category is Chennai Petroleum Corporation Ltd at 35%.
Similarly with dividend payout, while the industry median is 21.27, Reliance Industries maintains a payout of 9.72%, which is much lower than Indian Oil Co. Ltd’s 39.6%. But it is to be noted that Reliance has been investing oodles of money in its new businesses.
The overall moat and investor trust, however, has made the stock price shine through the years. The stock prices went from ₹1,280 in 2019 to ₹2,713 in October 2024. This also includes the big crash of 2020, when its stock price fell to ₹925.
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The stock is currently trading at a PE ratio of 27x (the industry PE, according to screener.in, is 10x) and has a 10-year median PE of 21x.
DIIs hold 17.3% of the total available shares with Life Insurance Corp. of India holding 6.27% and SBI Mutual Funds holding 2.45% of shares.
Incorporated in 1968, KEI Industries Ltd manufactures wires and cables (W&C) like EHV cables, HT cables, LT cables, and sells them in India and overseas.
The company’s current market capitalization is ₹37,421 crore.
The company’s sales jumped from ₹4,227 crore in March 2019 to ₹8,104 crore in March 2024, an absolute jump of around 91% and a compounded sales growth rate of 14%.
Ebitda grew from ₹442 crore in 2019 to ₹838 crore in 2024, a CAGR of 13.64%. Profits also grew from ₹182 crore to ₹581 crore in five years, at a compounded growth rate of 26%.
With a current RoCE of 27.2%, the company’s 10-year median RoCE is 25%, which seems like a decent number.
The company has a dividend yield of 0.08%, and it has maintained a dividend payout ratio of 5.44%, which is low considering its decent RoCE. The industry average is 22%.
However, the company is spending huge capital expenditures on capacity expansion and has an order book of over ₹3,500 crore.
This reflects in the stock prices, which grew from ₹545 in October 2019 to the current price of ₹4,145, which is a huge 660% jump in five years.
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The stock’s current PE is 60x, which seems to be on the higher side, while its 10-year median PE is 19.4x.
DIIs hold a little over 16% of the total available equity shares at KEI Industries.
Among the top funds, HSBC Multi Asset Allocation Fund holds 2.37%, Canara Robeco Manufacturing Fund holds 2.12%, and Franklin Build India Fund holds 1.21%.
For more such analyses, read Profit Pulse.
Please note that even with all these numbers, the company reported an order backlog of approximately ₹3,847 crore by the end of the September quarter.
A streak to follow?
Looking at these three stocks, it’s apparent that DIIs prefer investing in companies with strong fundamentals, prevalent market dominance, and good growth potential.
PVR Inox’s position in the growing entertainment industry, Reliance Industries’ diversified strength, and KEI Industries’ hold in the infrastructure sector all contribute to their appeal.
How these stocks will do in the future is something one should keep a vigilant eye on.
While DII investments can offer valuable insights, individual investors must conduct thorough due diligence. When making investment decisions, consider your personal financial goals, risk tolerance, and market conditions. While institutional wisdom can guide, a well-informed and diversified approach tailored to your unique circumstances is essential for successful investing.
Note: We have relied on data from www.screener.in and www.trendlyne.com throughout this article. Only in cases where the data was not available have we used an alternative but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Suhel Khan has been a passionate follower of the markets for over a decade. During this period, he was an integral part of a leading equity research organisation based in Mumbai as the head of sales and marketing. Presently, he is spending most of his time dissecting the investments and strategies of the super investors of India.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
