The Hindu Business Line : Small investors cash out — Public holding down in most Nifty companies

THE sustained bull-run on the bourses for over two years has failed to lure small investors into the market in a big way. In fact, they seem to be pulling out their investments from equities.

A good indicator of this trend is seen from the fall in public holding, which mostly includes investments of small investors, in most of the S&P CNX Nifty (Nifty) index companies.

The index comprises 50 companies that represent almost 60 per cent of the market capitalisation of the National Stock Exchange.

However, foreign institutional investors have increased their holdings in a majority of the Nifty companies.

The shareholding pattern of Nifty companies between March 2004 and June 2005 shows that public holding fell in 36 companies, while it rose in 14 companies.

The trend is reverse for FII holding during the same period. FIIS increased their stake in 38 companies, while they decreased holding in 12. In select cases, the public holding in percentage terms has declined; but in absolute number of shares, it has gone up. This is because of the public issue of shares by these companies.

In Oriental Bank of Commerce, the public holding declined from 7.97 per cent to 6.92 per cent, but the absolute number of shares held by the public has increased, after its public issue.

A close look at the individuals companies of the Nifty shows that public holding has increased in companies which have not participated in the bull run, while FII holding has fallen in such companies.

For instance, public holding in Dr Reddy's Laboratories increased from 12.18 per cent at the end of March 2004 to 13.08 per cent, while FII holding fell from 20.86 per cent to 17.55 per cent during the same period. The stock price fell from Rs 979 at the end of March 2004 to Rs 848 on Friday. A similar trend is seen in the stocks of MTNL, IPCL, National Aluminium Company and Shipping Corporation of India.

According to brokers, this could be due to the fact that the institutional investors are in a better position to judge the future financial performance of companies than the small investors.

Brokers and analysts said small investors are exiting on every rise in the stock price as the returns on their investment have increased substantially. While some other brokers said they have moved from large cap stocks to small cap stocks.

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Small investors cash out — Public holding down in most Nifty companies