Every fourth BSE-500 company has seen its investor base shrink over 10%
The late Dhirubhai Ambani took immense pride in the confidence small investors reposed in his company, Reliance Industries. The man who spread the equity culture in India employed a simple but effective strategy to draw small investors by the lakhs to his company — he shared the wealth that Reliance created with his small investors.
But the Dhirubhai Effect appears to have waned with his sons parting ways and the group splitting into two.
According to an analysis by Business Line, over the last two years, some 16 lakh small investors have exited Reliance companies belonging to both camps.
The biggest exodus was seen in the Anil Ambani-owned Reliance Power, with over 5.55 lakh retail shareholders exiting. Mukesh Ambani’s Reliance Industries was next, losing 4.78 lakh investors, followed by Anil’s Reliance Communications, with 3.10 lakh.
However, it isn’t just companies from the two R groups that have seen investors rushing to exit. . Infosys, Bharti Airtel, PowerGrid, Tata Motors, TCS, Idea Cellular, Suzlon Energy and Coal India too, have seen an exodus. But the numbers have been most significant for the Ambani companies, possibly because of their large shareholder base.
In the universe of BSE-500 stocks, retail investors have exited 300 companies in significant numbers over the last two years. In 120 of them, the retail investor base has shrunk by more than 10 per cent. The latter set includes MCX (47 per cent since it got listed), Oracle Financial (33 per cent) and Bajaj Auto (20 per cent).
Analysts point to issues of corporate governance, poor stock returns and high-cost expansions/diversification as reasons for small investors divesting their holdings. There is also the usual mop-up by promoters through buybacks when share prices are low.
Though Reliance Industries closed its buyback offer this January, the slide in its retail investor base has been uniform, at about 1.75 per cent every quarter even after the open offer, indicating waning interest.
The lack of any intent to distribute profits, movement of stock prices within a limited band and structuring of critical deals with a view to pass on maximum gains to promoters and private equity investors have all squeezed the gains of retail investors even from premium stocks, says Abhishek Asthana, a Director at de Analyst, an investment advisory firm.
Instead of tapping the retail market, the preference of companies for alternative routes of fund-raising has not helped, he adds.
According to V. Krishnan, President, Integrated Enterprises, a broking firm that caters mainly to the retail segment, investors are losing interest in equity as they have not been getting consistent returns. “They are unable to differentiate between bull and bear phases. The words ‘long-term’ and ‘short-term’ acquire different meanings during different phases,” he says. “For instance, during the 2006-08 period, three months used to be a short-term investment and a year-long wait was considered long-term. After 2008, long-term is anywhere between two and five years, and at times even stretches to 10.” All this leaves the investor befuddled. Krishnan says advisors must educate investors that returns will not be uniform in equity investments and that they carry risks and are volatile. Also, investors should realise that “long term” is at least 10 years.
With several stocks ruling far below their 2008 peaks, the value of many investors’ investments has halved. Benchmark indices registering new peaks is a false dawn for most stocks, he says.
Ramesh Chordia, a stock broker and independent analyst, blames the enormous loss retail investors incurred in the Futures and Options segment in 2008 on apathy. “Those who lost heavily and were forced to square off their positions are yet to recover,” he says.
Even more fundamentally, the persisting economic slowdown may have forced some investors to cash out their investments in the face of a job-loss or significant pay cut. There has also been the double whammy of rising prices for most products and services.