The stake of domestic investors in Indian companies has hit a three-year low even as foreigners continue their buying spree.
An analysis of the shareholding patterns of the 175 BSE 500 constituents that have declared shareholding patterns shows that shareholdings of both domestic retail investors and domestic institutional investors have dropped to three-year lows.
While domestic institutions reduced their stake in 110 companies, retail investors pruned their stake in 94, or a little over half the number of companies that have reported the numbers.
As a result, their aggregate shareholdings in the 175 BSE500 companies have come down by 11 basis points (bps) and 16 bps quarter on quarter to 9.52% and 10.78%, respectively.
Sudhakar Shanbag, CIO, Kotak Life Insurance, feels profit booking and preference for other asset classes has led the domestic investors to sell off equities. “Equity as an asset class has been considered volatile by the investors and they seem to be shifting focus towards debt and gold. The people who were already invested have been booking profits rather than staying invested. In mutual fund industry, too, we have seen more redemptions in equities than cash flows coming in," he said.
Retail investors were net sellers in stocks like Hindustan Zinc, CCL International, Karnataka Bank and Elgi Equipments, with their stakes in these firms down by 29.57%, 13.53%, 4.45% and 1.80%, respectively.
On their part, domestic institutions reduced their major holdings in Tata Global, Hexaware, HPCL, Divi's Lab and Bajaj Auto.
Rikesh Parikh, vice-president, markets strategy and equities at Motilal Oswal Securities, believes the retail investor, having burnt his fingers in the mayhem post-2008, remains reluctant to participate. “As a result, for mutual funds, there has been a reduction in the number of portfolios and for insurance companies, less number of people turned up for Ulip and other linked investments.”
Foreign institutional investors (FIIs), on the other hand, have upped their stakes in 117 firms while reducing stake in 52 to take their aggregate stake in these companies up from 13.52% in September quarter to 14% – the highest in the last 10 quarters.
With growth rates and opportunities limited globally, India has become an attractive investment opportunity for global investors, said Shanbag.
To recall, FIIs had bought shares worth Rs 45,539 crore in the December quarter and Rs 129,319 crore in calendar 2012. They increased their stakes the most in Persistent Systems, Shree Ganesh Jewellery, Karnataka Bank and Federal Bank.
Experts are hopeful retail investors will return to equities as the market stabilises.
"If the market becomes sustainable and the momentum continues, retailers might again turn up for equity investment," said Parekh.