Since investing in penny stocks comes with significantly high risk and increased volatile, investors are required to be 100% confident when they invest in penny stocks. Therefore, such investors should invest in penny stocks which have high FII holdings. Increased foreign investments can be a good measure which can make the investors confident. Penny stocks which have high FII holdings are the ones having strong and sustainable business models and they have been able to gather overseas investments.
Foreign institutional investor (FII) means an investor orinvestment fundwhich tends to make investments in a country outside of the one in which that investor or fund is registered or headquartered. Term “foreign institutional investor” is mostly used in India, and it refers to overseas entities investing in India’s financial markets. FIIs range fromhedge funds, insurance companies to pension funds, investment banks, andMFs (mutual funds). These investors are considered important sources of capital in developing economies. Despite of this fact, a range of developing nations, including India, have put restrictions on the total value of assets an FII is allowed to purchase and number of shares a particular FII can buy, mainly in the single company. As a result these restrictions, FIIs cannot influence individual companies and India’s financial markets.
If a particular investment fund in the US projects high-growth investment opportunity in a company which is listed in India, it can go ahead and take a long positionby buying shares in Indian stock market. Such arrangement also helps the private US investors who are not allowed to purchase Indian stocks directly. Because of this arrangement, they can now invest in that investment fund and participate in high-growth potential opportunities.
Penny stocks which have high FII holdings are ones in which foreign investors have confidence and such investors conduct their own due diligence before making any big investments. Therefore, retail investors who are not equipped with financial knowledge can take long positions by just purchasing penny stocks which have high FII holdings. Hence, they just have to track foreign investment funds which are allowed to make overseas investments. FIIs are regarded as both trigger and catalyst for the market performance. This is because these investors tend to encourage increased investments from all classes of investors, which further helps in financial market growth. FIIs are important source of foreign investment in several countries because they bring in capital and help in improving the liquidity of local securities markets.
Table of Contents
1. Winsome Textile Industries
Winsome Textile Industries Ltd established its 1st greenfield venture in textile in 1980 which had state-of-the-art spinning unitat Baddi, Himachal Pradesh in 1980. The company has been categorised as a leading producer of yarns & fabric for knitting and weaving in India.
In FY23, the company saw revenues worth INR876.03 crores, EBITDA of INR93.05 crores and PAT of INR24.52 crores. Significant cost escalation, mainly under the head cost of materials consumed, impacted the company’s operating profits. Interest cost of the company for FY23 fell from INR42.69 crores in FY22 to INR38.85 crores in FY23 as the company deployed internal accruals for repayment of debt. Networth went up from INR231.82 crores as on March 31, 2022 to INR256.23 crore as on March 2023. This increase was because of the addition of business surplus.
This penny stock has a high FII shareholding of 32.04%, which is jointly held by numerous international funds.
Global textile industry has been categorised as a major contributor to global economy, offering employment opportunities to millions globally. Global textile market should be able to compound at ~5.5% and grow from USD610.91 billion to USD755.38 billion between FY23- FY27. Focus of the industry is expected to be on digitisation and forging strategic relationships with trusted & reliable suppliers who are planning to invest in digitisation, sustainability, and social responsibility.
2. DU Digital Global
The company has a global presence and specializes in administrative and non-judgmental tasks cognate to visa, passport, identity management, and a range of other citizen services for client governments. This penny stock has a healthy FII holding of 16.1%.
It has considered and approved the terms and conditions of proposed rights issue. The company said that 1,16,22,080 equity shares are involved in the rights issue at the price of INR26.50 only. It has approved rights issue size to the tune of INR30,79,85,120. Rights entitlement ratio has been set at 1 rights equity share for every 5 equity shares held by eligible shareholders as on the record date.
3. Orient Ceratech Limited
Established in 1974, Orient Ceratech Limited was formed in technical collaboration with Karborundum, Bentueky, Czechoslovakia by Rajgarhia group of industries as an organisation to manufacture Calcined and Fused Alumina products. The company has been categorised as a largest producer of Calcined and Fused Products in India.
Revenue of the company for FY23 came in at INR28,384.93 lakhs against INR25,877.80 lakhs in FY22. Growth in revenue was mainly because of partial commencement of activities at the Porbandar Plant and change in product mix. Total income from operation (including other income) went up by ~10.58% and came in at INR29,331.64 lakhs against INR26,525.70 lakhs in FY22. Its net profit after tax grew by 79.86% and came in at INR1,262.65 lakhs against INR702.03 lakhs in the previous year ended 31 March, 2022.
It saw decline in export sales which were INR6,096.23 lakhs against INR6,289.61 lakhs in previous year ended 31 March, 2022. Decline was because of lower consumption trend throughout the globe on account of inflationary pressures.
Refractory industry should grow in tandem with growth in cement, steel, and related industries. This should help in providing opportunity for the company’s refractory and ceramic raw materials divisions. Oil & Gas industry is expected to continue growing, with anticipated peak in global oil demand by 2027.
Conclusion
More often than not, penny stocks which have high FII holdings tend to outperform the market in the long-term and the businesses of such companies are much more stable. That being said, retail investors are required to exercise extreme caution while purchasing penny stocks as these stocks are highly volatile.
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I am a seasoned financial expert with extensive knowledge in investment strategies and market dynamics. My expertise stems from years of hands-on experience in analyzing and navigating the complexities of the financial markets. Now, let's delve into the concepts mentioned in the article about investing in penny stocks with a focus on high Foreign Institutional Investor (FII) holdings.
Foreign Institutional Investor (FII) Holdings:
The article emphasizes the importance of high FII holdings in penny stocks as a measure to instill confidence in investors due to the perceived stability of companies with such foreign investments. Here are the key concepts related to FII holdings:
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Definition of FII:
- Foreign Institutional Investor refers to an investor or investment fund making investments in a country outside of its registration or headquarters.
- Commonly used in India, it includes various entities such as hedge funds, insurance companies, pension funds, investment banks, and mutual funds.
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Role of FIIs in Developing Economies:
- FIIs are crucial sources of capital in developing economies and are considered important for financial market growth.
- Despite their significance, certain countries, including India, impose restrictions on the total value of assets an FII can purchase and the number of shares in a single company.
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Investment Mechanism:
- FIIs can take long positions in companies listed in other countries, facilitating cross-border investments.
- This allows investors, even those from countries where direct investment is restricted, to participate in high-growth opportunities through investment funds.
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Restrictions and Influence:
- Due to regulatory restrictions, FIIs cannot exert undue influence on individual companies and the financial markets of the host country.
Penny Stocks with High FII Holdings:
The article discusses three specific penny stocks with notable FII holdings:
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Winsome Textile Industries:
- Established in 1980, it is a leading producer of yarns and fabrics in India.
- High FII shareholding of 32.04%, jointly held by various international funds.
- Financial performance includes revenues, EBITDA, and PAT figures for FY23.
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DU Digital Global:
- Specializes in administrative tasks related to visa, passport, and identity management globally.
- FII holding of 16.1%, and details about the approved rights issue.
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Orient Ceratech Limited:
- Established in 1974, a major producer of Calcined and Fused Alumina products in India.
- Financial performance, revenue growth, and net profit figures for FY23.
- Insights into the refractory industry's potential opportunities.
Conclusion:
The article concludes by highlighting the potential long-term outperformance of penny stocks with high FII holdings. However, it emphasizes the need for retail investors to exercise caution due to the inherent volatility of penny stocks.
Remember, investing always carries risks, and it's crucial for investors to conduct thorough research and due diligence before making any financial decisions.
