Retail investors exited from over 1,000 listed stocks at the NSE, in varying degrees, between March 2012 and March 2013. The investor base on an average shrank by 4.4 per cent, not counting exits from companies’ share buyback programmes.

Overall, the number of shareholders with holdings of less than Rs 1 lakh decreased from 10.9 crore in March 2012 to 10.6 crore in March 2013. India is still the country with the largest retail participation, although such investors form but a small percentage of the population.

The Reliance group of companies seems to have retained its attraction for small shareholders. The five Reliance group companies (Power, Industries, Communication, Infrastructure and Capital) have the maximum number of small shareholders. Around 1.17 crore investors still hold shares, after the investor count dropped by 6.7 lakh last year.

“Reliance group companies have a history of trust from retail investors for investor friendliness and consistent returns” says Leopaul George, Business Head at Vanguard Equities, adding that “the underperformance of Reliance Power after its IPO in 2008 and the split in the group have dented this view in the last few years”.

The top 20 companies, ranked by the number of individual shareholders with less than Rs 1 lakh capital invested in one company, saw an exodus of 6 per cent. Among the various sectors, the exodus was highest in IT sector stocks which saw a 6 per cent drop in retail investor count, followed by construction stocks which saw 4 per cent drop.

Returns from equity

Investors instead flocked to the diamond and jewellery sector, which saw a 7.4 per cent increase in count. Kingfisher Airlines added 86,000 shareholders — from 1.35 lakh holders in March 2012.

BHEL and Hindalco also saw a growth in the shareholder base. Their low price may have been an attraction.

Fall in retail shareholder interest may have also been due to high post-tax returns, of 9 per cent, from debt instruments, according to Gopkumar, Executive Vice-President, Kotak Securities. “Besides, there is also a structural shift with investments moving to gold and real estate. Investment in equity has also been affected by market sentiment”, he opines.

Lack of broad-based gains as the reason for low interest was cited by others too. “There are many issues, particularly corporate governance and lower return from equities” says Saurabh Jain, Head of Research (Equity-Retail) at SMC Global Securities, “and it has become increasingly difficult for retail investors to make profits, both in the short as well as long term”. He also expressed concern over Indian investors having a very short horizon, unlike those in developed markets.

Immediate concern

Informal data from NSE officials show that new investors continued to enter the market but there was a slow-down compared to the past. Waning retailer interest is an urgent concern for companies that need to meet the SEBI mandate of bringing non-promoter holdings at or above 25 per cent.

With the June 2013 deadline drawing near, many companies face the daunting task of wooing investors to their Offer for Sale (OFS).

OFS may be just what may help entice retail investors. According to Saurabh Jain, “attractive pricing of these offerings, as in the case of PSU offers, where a discount was given to retail, will help bring in retail investors”.

Leopaul expressed a similar sentiment, saying offers from companies with good prospects would interest investors. Gopkumar pointed out that the increased liquidity as a result of this mandate would help retail investors in the long run.

This analysis is based on the March 31 shareholding patterns disclosed by listed companies.

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