Retail investors, after sitting on the fence for much of last year, have turned active. In the quarter ended March 2011, they increased stakes in more companies than foreign or domestic institutional investors.
Holdings by retail investors increased in half the stocks that make up the CNX 500 index over the past two quarters ended March 2011. In terms of stock picks, retail investors favoured small-cap stocks (market capitalisation less than Rs 2,500 crore), in contrast to the FIIs that preferred mid- and large-caps. Of the companies that saw a significant retail stake increase by at least 2 percentage points, seven in ten were from the small-cap space. No large-cap company figured in this list.
For this analysis, we considered the change in the shareholding patterns of the companies that make up the CNX 500 for the quarters ended March, December and September last fiscal. Of the 500 index companies, 364 have declared their March shareholding.
Where they hiked
Apart from going in for small-caps, retail investors mainly bought into low-priced stocks; those trading at an absolute price of less than Rs 200. For instance, retail stake in Patel Engineering went up from 16.3 per cent in the December quarter to 20 per cent in the March quarter. Similarly, holdings in Sintex Industries hovered around 8 per cent in the September and December quarters before moving up sharply to 11.2 per cent in the March quarter.
The market capitalisation of the holdings of retail investors held at 8 per cent of total market capitalisation for the December and March quarters, even as total market-cap dipped by 1 per cent during the period.
Even as they bought into a good number of stocks, retail investors also reduced holdings in a number of stocks for the March quarter. In shedding stakes however, retail investors did not show a marked preference, reducing stakes almost equally in mid- and small-caps. In stocks such as Gitanjali Gems and Welspun Corp, retail holdings dipped in the March quarter after having increased in the December quarter.
FIIs, in contrast to retail investors, reduced their stakes in companies in the March quarter. FII holding in Karnataka Bank, for example, dropped from 30 per cent in the December quarter to 25 per cent in the March quarter. Further, FIIs completely exited stocks such as Graphite India and CPCL.
Even while curbing their investment activity, the FIIs picked a few outperformers. The top stocks in the CNX 500 in which they hiked their stakes were M&M Financial, Voltas and Canara Bank. This is a completely different set of stocks from the ones preferred by retail investors.