Institutional Preference for Firm Attributes: Evidence from India

This paper examines the firm characteristics typically preferred by institutional investors before investing in a stock in the Indian equity market, and also explores the implications of such preferences in terms of their subsequent performance. We find that all institutional investors show strong preferences for larger market capitalization stocks, stocks with international exposure and stocks included in indices. However, their preferences for price, leverage, turnover and other parameters differ. We also find that the preferences of these institutional investors are dynamic in nature and vary over time. It is observed that such preferences exhibited by institutions do not translate into concrete performance as manifested by lack of predictive power of stock returns in the following quarter.