Small investors continue to catch falling knives

In spite of the high number of exits, Reliance group firms of both brothers continue to be darlings of small investors

The banking sector’s troubles don’t seem to have put off retail investors.

Between June 30, 2015, and June 30, 2016, the State Bank of India (SBI) stock lost nearly 17 per cent. Yet, it added 292,000 new retail investors. As of June-end, 1.57 million small shareholders hold the stock - up from 1.28 million the previous year.

While SBI topped a list of 1,517 the National Stock Exchange (NSE)-listed companies that have declared the numbers so far, it was not the only banking name in the top 10.

ICICI Bank was second on the list, adding 133,000 investors; Axis took the fifth spot with 114,000 new retail investors.

While the ICICI stock fell around 20 per cent during the year, Axis fell about five per cent.

Aditya Birla Fashion and Retail (123,000) and Larsen & Toubro (116,000) completed the top five. These two stocks also fell between 16 and 20 per cent.

Companies which saw big falls in retail holdings are Reliance Power (153,000), Reliance Industries (119,000) and NHPC (70,000).

Reliance Power and NHPC ended gainers for the year, while RIL fell around three per cent. During the same period, the benchmark Sensex fell 2.8 per cent.

It is not only the banking sector or the top names, the small investor seems to have been catching the falling knives across the broader market.

According to PRIME Database, retail holding went up in 767 companies in the past year. The average increase in stock price of these companies in the same period was only 20 per cent.

On the other hand, the retail holding went down in 671 companies. The average increase in stock price of these companies, however, was a much higher 47 per cent.

Pranav Haldea, managing director, PRIME Database, said this validates “the oft-used phrase that retail buys at the peak and sells at lows.” But, analysts feel it is also possible that retail investors entered at lower levels and might stand to benefit in the long run.

For example, the SBI stock had plunged to Rs 150–levels in February, when the concerns over stressed assets problem peaked. The stock has since recovered by over 43 per cent.

Dinesh Thakkar, chairman and managing director, Angel Broking said retail investors’ strategy might turn out to be good in the long term.

“They have sold commodity stocks, power and steel and got into fundamentally strong sectors such as banking and staples, which are considered defensive. It might not look good in the short term, but might play out positively in the longer term,” Thakkar said.

In absolute value terms, retail holding was at the highest level ever at Rs 8.69 lakh crore, up by nine per cent from a year back and 10 per cent from the last quarter alone, courtesy the buoyant markets, data from prime showed. The value has gone up by nearly 2.5 times in the last seven years.

In June 2009, when the market started on the recovery path following the global financial crisis, the value of retail holding in some 1099 companies was Rs 362,000 crore. In percentage terms, the retail share has remained almost flat. It is 8.68 per cent now as against 8.62 per cent in 2009.

Haldea said retail investors have an overwhelming presence in smaller companies, which institutions usually avoid. Therefore, though they hold 21.56 per cent of the market in terms of number of shares, they account for Rs 869,000 crore or less than nine per cent of the value.

In comparison, 6.65 per cent (number of shares) owned by foreign portfolio investors was worth Rs 20.13 lakh crore and 5.61 per cent owned by domestic institutions was worth Rs 11.74 lakh crore, underlining their focus on larger companies.

One name that seems to defy this trend is Reliance. In spite of the high number of exits, Reliance group firms of both brothers continue to be darlings of small investors.

The companies with the highest number of retail shareholders are Reliance Power (3.59 million), Reliance Industries (2.57 million), Reliance Communications (1.62 million), State Bank of India (1.57 million), Reliance Infrastructure (1.1 million), Reliance Capital (0.98 million), Suzlon Energy (0.975 million), ICICI Bank (0.95 million), Larsen & Toubro (0.949 million) and Tata Steel (0.94 million).

Thakkar said he saw new retail investors coming into the market and predicted a good year.

“A new breed, more educated, more informed and digitally savvy investors are entering the market. We have seen record inflows into the mutual funds last year. I expect retail to invest more than last year. Combined with the FII flows of around $15-16 billion, the market looks strong and poised for good returns. Selling would come only from government disinvestment and initial public offerings, which will not be much.”

Photograph: Danish Siddiqui/Reuters