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Monday, Nov 24, 2003

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Small investors are now getting smarter, wiser

Virendra Verma

Mumbai , Nov. 23

THERE is a drop in the number of equity shares owned by the public in major companies. This appears to suggest that retail investors may be quitting the stock market at the first available opportunity.

Analysis of latest filings with the stock exchanges not only shatters a growing perception that falling returns elsewhere are herding small investors to the booming stock market, but also reiterates the growing foreign ownership of several companies.

Between April and September, while the public holding in 41 companies that comprise S&P CNX Nifty, the 50-share benchmark index of the National Stock Exchange, declined, the foreign institutional holding in them increased substantially. The share of public holding went up in the remaining eight companies. During that period, the value of the index rose more than 60 per cent.

Portfolio investors have invested more than $6 billion this year in Indian equities, and most of it appears to have gone into mopping up stock from the retail public. FII equity holding has gone up in 41 of the Nifty companies and has come down in eight. In State Bank of India, where regulation limits foreign holding to 20 per cent, it has remained unchanged.

Stockbrokers and market experts say that small investors, who have burnt their fingers badly in the past, are quitting the stock market at the first opportunity. All those who were stuck with stocks that had little value are trying to recover their investments at the slightest appreciation, said a dealer.

According to Mr Nikhil Thacker, Assistant Vice-President (Research), Asit C. Mehta Securities, "With every rise, small investors have booked profit." Mr Thacker also added that FIIs have been active buyers.

The SEBI Chairman, Mr G.N. Bajpai, however, has an interesting explanation. According to Mr Bajpai, "Small investors have become more intelligent due to investor education and have sold their holdings at every rise in stock prices."

Big rallies orchestrated by unscrupulous operators have lured retail investors to the stock market in the past and left them high and dry when the bubble burst. They seem to have become wiser with the experience. "Individual investors exited from equities when they saw the high prices after a long time," Mr Ambarish Baliga, Vice-President, Karvy Stock Broking, said.

The prices of several index stocks such as Reliance Industries, HDFC, SBI, Tata Steel , Grasim, HDFC Bank and Oriental Bank of Commerce touched new highs in the current rally.

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