Retail investors’ wealth erodes as negative news flowhits sentiment
YES Bank, DHFL, Shankara Building Products, Prabhat Dairy & Dilip Buildcon have fallen over 40% since July 2018
Retail investors have burnt their fingers and seen their wealth erode over the past six months. An analysis of the shareholding pattern of 219 companies of the S&P BSE All-Cap index where retail investors have increased their stake by 1 percentage point or more in the past six months shows an up to 88 per cent fall in stock prices during the period.
The S&P BSE All-cap index accounted for 97 per cent market capitalisation of companies listed on the BSE.
YES Bank, Dewan Housing Finance Corporation (DHFL), Shankara Building Products, Prabhat Dairy, Deepak Fertilisers and Chemicals, Indiabulls Real Estate, Reliance Capital, Reliance Communications (RCom), Aban Offshore and Dilip Buildcon have tanked over 40 per cent since July last year.
Most of these stocks were under pressure because of a negative news flow and weak set of financial results.
The combined market capitalisation (market-cap) of these 219 companies slipped 27 per cent to about ~6.6 trillion as of February 6.
In comparison, the benchmark S&P BSE Sensex has gained 4.3 per cent, while the S&P BSE mid- and small-cap indices slipped 7 per cent and 15 per cent, respectively. DHFL Retail shareholding (%) Price on BSE (~) Dec 2018 chg* Feb 7, 2019 % fall# 21.4 7.2 115.1 -81.9 Shankara Building Infibeam Avenues Reliance Capital JP Associates 10.6 1.1
“Many retail investors have seen their wealth erode due to averaging. Buying at peak levels and then trying to average or reduce the holding cost in a falling market is a bad strategy. One must look at valuation, credibility of promoters and the business growth model before taking an investment call,” advises G Chokkalingam, founder and managing director, Equinomics Research.
Beating a retreat
RCom hit an all-time low of ~4.85 on Wednesday in intra-day trade on the BSE. The stock of the telecom services provider finally settled at ~5.50 on 34.4 116.2 -77.5 -70.0 Thursday, and has tanked 53 per cent in the past three days after the company decided to opt for insolvency proceedings. Retail investors increased their stake in the company by 1.4 percentage points on a sequential basis to 22.8 per cent in the December 2018 quarter. Retail shareholding in DHFL, too, has risen by 7.2 percentage points since the September quarter, but the stock has tanked 81 per cent from its June 29, 2018, level on the back of negative news. Retail shareholding in both these companies were at their respective record high levels in the December quarter, the data shows.
“Given the current market condition, I do not see any chance of a strong recovery in these stocks. The main aim now should be capital protection rather than lowering the holding cost or averaging at lower levels,” says A K Prabhakar, head of research, IDBI Capital.
YES Bank slipped 48 per cent since July after the Reserve Bank of India (RBI) curtailed the term of the lender's founding chief executive officer (CEO), Rana Kapoor. However, with the appointment of Ravneet Gill as his replacement, analysts say the bank is on the road to recovery.
“Ravneet may be instrumental in swinging cross-border transactions and other structured product solutions on to YES Bank owing to his deep relations, which would aid profitability. We believe with Ravneet in the front seat, raising capital becomes that much easier,” wrote Nilanjan Karfa and Harshit Toshniwal of Jefferies in a recent report and maintain a buy rating on the stock with a target price of ~275.
As regards the small-cap segment, Karan Khanna, an analyst at Ambit Capital, believes the valuation has now become attractive and there are opportunities for long-term investors. “The valuation of small-caps is now attractive — down 26 per cent versus 12 per cent for the Nifty50 over the last one year. VIP Industries, Alkyl Amines, GMM Pfaudler and Gujarat Ambuja Exports are our tops picks in this segment,” he says.