Stocks of companies embroiled in the recent spate of allegations relating to the telecom scam have wiped out investor wealth totalling Rs 40,000 crore so far this year.

While foreign institutional investors (FIIs) systematically offloaded these stocks even as various allegations were doing the rounds, retail investors have been doing quite the opposite. They have been buying into these stocks as they plunged.

The series of arrests that followed the housing loan scam and the 2G spectrum controversy saw the stocks of Money Matters Financial Services, DB Realty, Unitech, Videocon Industries and the ADAG group plunge in the market. These stocks have lost between 15 per cent and 60 per cent till date in 2011.

The shareholding pattern disclosures of the controversy-hit stocks show that FIIs offloaded these stocks as they fell. FII holdings in Unitech and DB Realty have fallen from 34.6 per cent and 7.7 per cent and to 31.7 and 5.5 per cent, respectively, between September 2010 and March 2011. In DB Realty, FIIs sold 54 lakh shares over the last two quarters, which is almost a third of their holdings in the company.

There was disinterest among domestic institutions too for these stocks. Despite a bounce-back in its price, the stock of LIC Housing Finance was not able to retain institutional investor interest. Between September 2010 and March 2011, the stock has seen both domestic and foreign institutions reducing their stake.

Buying opportunity

Retail investors, in contrast, seem to be viewing these price falls as a buying opportunity! Over the last two quarters from September 2010, retail investors have increased their holding in most of the scam-hit stocks. The prominent ones are LIC Housing Finance, Reliance Power and Unitech.

Mr Dipen Shah, Senior Vice-President, Private Client Group Research, Kotak Securities, says they have not been recommending the scam-tainted stocks to their clients. Some investors, he added, however buy into such stocks hoping to make trading profits.

“There may be money-making opportunities in such stocks. I regret not buying into the Satyam Computers stock when it fell to a single digit price of Rs 6, and see how it has shot up? I wish I had accumulated a few thousand shares then,” says a retail investor who trades frequently on the market.

Incidentally, the stocks of Sun TV Networks and SpiceJet, which were battered last week on reports of fresh investigations into telecom licences, have already seen institutions pare stakes over last two quarters. Retail investors, however, have increased exposure to both the stocks in the last six months, losing money in the bargain.

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