Stocks with high foreign holding like HDFC Bank, Infosys, ITC score over peers

This perception led to sovereign wealth funds of Abu Dhabi and Singapore buying HDFC Bank shares in October-December, when the stock fell almost 9%, analysts said.

While stocks such as Infosys and L&T have not been in favour among investors as much as HDFC Bank, of late, brokers said foreign institution

s prefer buying these shares over their peers in the software and infrastructure space.

"FIIs take big stake in companies with better corporate governance practices," said Sonam Udasi, head of research at IDBI Capital Markets. "As they invest in clean companies as part of a long-term growth strategy, these companies bound to outperform the broader market," he said.

Even smaller companies with higher foreign institutional holdings than a promoter group such as YES Bank, Karur Vyasya Bank, Strides Arcolab, IndusInd Bank, Hexaware Technologies gained between 40% and 130% since 2008. LIC Housing Finance surged 253% since January 2008. 
"If a company's promoters allow FII holding to increase beyond their holding, it could be an indication of a professionally-managed company," said Sandeep Singal, co-head-institutional equity at Emkay Global. "Consequently, other quality parameters of the company like debt may also be well-managed. If an FII is also on the board of a company, it would be an added benefit," he said.

In 2012, nearly 80% or 32 out of 40 such stocks have outperformed the broader market. The leading performers among them are IVRCL, NCC, India Infoline, United Spirits and IDFC, which have surged over 50% this year so far. But many of these stocks may not have outperformed due to higher foreign institutional holdings. Most of them were laggards in 2011.

But analysts said putting money in companies with higher foreign institutional shareholding may not be the best investment strategy.

"It is not necessary that companies with FII holding lesser than promoter holding have underperformed. If that was the case, wouldn't every promoter want to increase FII holding beyond their holding," said Singal. A section of the market feels appreciation in these stocks would be limited in a bull market as they are overowned.

"Other than a good management and fundamentals, lower institutional holding is a key aspect for many investors while selecting a stock. Such stocks may not find favour among these investors in a bull run," said the chief investment officer of a bank-owned mutual fund.