News Analysis

Street-smart HNIs raise equity holdings as market corrects

Keerthi Sanagasetti BL Research Bureau | Updated on August 02, 2020 Published on August 02, 2020

Invest in dips to average cost even as retail investors unload to cope with Covid disruptions

Individual investors are reported to have been at the forefront of stock trading over the past few months. Leading them are high networth individuals (HNIs), who have been astute in increasing their stakes in stocks amid the market fall.

A BusinessLine analysis of the changes in shareholding patterns of listed companies shows that the shareholding of HNIs — individuals holding more than ₹2 lakh of the nominal capital of a stock — increased to 2.4 per cent in the June 2020 quarter from 2 per cent in the December 2019 quarter.

The analysis is based on 3,945 listed companies that have disclosed changes in their shareholding pattern for June 2020, so far. HNIs increased their stakes in about 3,297 companies, or 85 per cent of the stocks covered. Of these, 98 per cent (about 3,254 companies) were from the mid- and small-cap categories. The rally of over 24 per cent in the BSE mid-cap and small-cap indices in the June quarter seems to have attracted HNIs.

The spike in the HNI holding could be indicative of a widely used investing strategy of buying in dips to average the cost.

“A lot of small- and mid-cap companies have recouped a sizeable portion of the fall in their stock prices during the June quarter. HNIs added to their holdings in those stocks or bought afresh, post the market correction in March, to enhance their alpha from these stocks,” says Deepak Jasani, Head of Retail Research, HDFC Securities.

Retail shareholders (individuals holding up to ₹2 lakh of the nominal share capital), on the other hand, lowered their holding to 6.4 per cent in the June 2020 quarter from 6.6 per cent in December 2019.

While HNIs could park their surplus funds in equities to take advantage of the market carnage, retail investors mostly had to tighten their purse strings amid the pandemic-led disruptions.

 

Risk aversion

S Hariharan, Head of Sales Trading, Emkay Global Financial Services, says: “There has been a noticeable drop in SIP numbers in the first quarter of FY21, indicating reduced retail investor appetite. The drop in monthly inflows into equity schemes of mutual funds also highlights the risk aversion and a preference for increased liquidity among smaller investors.”

Panic-selling, too, could have played a role, according to Jasani. “Retail investors typically tend to panic more, which could have led to a huge sell-off from their end,” he says. “HNIs, on the other hand, are comparatively better informed and mature.”

Shareholder categories such as mutual funds and insurance companies also increased their holdings from 7.3 and 4.4 per cent, respectively, in the December 2019 quarter to 7.8 and 4.5 per cent, respectively, in the June 2020 quarter.

Promoters, on the other hand, reduced their holding to 50.6 per cent in the June 2020 quarter from 51.2 per cent in December 2019. Foreign institutional investors (FIIs) too brought down their holdings by 40 basis points from December 2019 to 18.9 per cent in June 2020.

What did they buy?

Among the top 10 stocks that saw a sharp increase in HNI investors’ stake, two are from the banking and financial services industry — Federal bank and Motilal Oswal Financial Services. Pharma stocks such as Alkem Lab and Jubilant Life Sciences were also among their favourites.

The stock that tops the list is Vodafone Idea, where HNIs now hold 7.9 per cent compared to 3.1 per cent in December 2019.

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Published on August 02, 2020
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