A crisis of confidence

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: While the benchmark 30-share Sensex of the Bombay Stock Exchange has doubled since the lows of March, retail investors are still cashing out of the market. It is indicated by the shareholding pattern of Indian companies.

Out of over 900 companies that have filed their shareholding break-up for the quarter ended September this year, about 600 of them have reported drop in the retail share. The fall has been across all categories—large cap, mid cap and small cap. Retail investors hold shares worth less than Rs 1 lakh in any listed company.

That’s not all. Even retail investors have given a lukewarm response to many of the recent initial public offerings, which saw huge oversubscription from qualified institutional buyers and high-net individuals. The retail portion of the recent IPOs was oversubscribed by about 2-3 times, which is far less than 5-6 times oversubscription during the bull-run of 2006 and 2007.

This, analysts say, is because investors have low confidence in markets. They are not finding any value in IPO investments and, hence, are not comfortable to borrow and invest at the current highs. In fact, a few of the stocks are even trading below their offer price. For example, the initial public offering of NHPC was oversubscribed 29.16 times by qualified institutional buyers and only 3.7 times by retail investors. The script is now trading at Rs 32, which is below the issue price of Rs 38.

Says Apurva Shah, head of research at Prabhudas Lilladher, “At present, the proportion of funds inflow from FIIs in markets is much more than from retail investors and this is the reason why we are seeing the change in the shareholding pattern.”

For retail investors, the secondary market is turning out to be more lucrative than the primary market. If a retail investor has to invest in a new company, analysts say, he would rather wait for the actual price discovery in the secondary market and then make his investment decision.

Sarabjit Kour Nangra, vice-president, Research, Angel Broking, says most of the recent IPOs have come at fair or stretched valuations, which warrants taking a long-term view on the stocks. “Further stretched valuations also lead them, faring poorly at bourses. Consequently, we have seen a poor response from retail investors towards the IPO market, inspite of buoyant secondary markets,” she point out.