Why Reliance Industries is losing its charm with retail investors

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New Delhi | Updated: Jun 14, 2015 9:29 AM

Despite the heightened investor activity in the stock markets in the year 2014-15 and more retail investors entering the market following a strong rally of around 25 per cent in the premier exchanges.

reliance industriesThe significant lag in the Reliance Industries stock performance in comparison to the benchmark index and other blue chip stocks seem to be the prime reason behind retail investors decline in interest in the stock and them pulling out of the company.(Reuters)

Despite the heightened investor activity in the stock markets in the year 2014-15 and more retail investors entering the market following a strong rally of around 25 per cent in the premier exchanges , shareholder participation in Reliance Industries—the largest profit making company in the country — continued to decline.

According to the data in the company’s annual report, during the year 2014-15, almost 1.5 lakh retail shareholders holding up to 500 shares in the company exited the stock taking its tally of such shareholders down to 26.7 lakh from 28.19 lakh a year ago. The decline has continued for the last five years and the number of retail shareholders holding up to 500 shares in the company has come down from 34.22 lakh in March 2010 to 26.7 lakh in March 2015.

While it once used to be the preferred choice of retail investors, the scrip has lost its charm among retail investors and the company has lost more than one fifth of its total shareholders over the last five years. The number of total shareholders has come down from 35.6 lakh in March 2010 to 27.9 lakh in March 2015.

The fall in the year 2014-15 comes even as the number of investor accounts with National Securities Depository Limited (NSDL) and Central Depository Services limited (CDSL) rose by an aggregate of 14.8 lakh  from 2.18 crore accounts in 2013-14 to 2.33 crore accounts in 2014-15.

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During the year, even the turnover in the cash segment of both NSE and BSE witnessed heightened activity and it rose by over 55 per cent on aggregate.

It is not that only the very small investor made an exit, even shareholders falling within the investor category holding between 501 to 1,000 shares fell from 72,925 shareholders till March 2014 to 70,803 shareholders in March 2015. Even the large shareholders holding over 20,000 shares in the company seemed to be in the exit mode and their numbers came down from 1701 in March 2014 to 1,641 in March 2015. The number of such shareholders stood at 1,900 in March 2011.

The significant lag in the Reliance Industries stock performance in comparison to the benchmark index and other blue chip stocks seem to be the prime reason behind retail investors decline in interest in the stock and them pulling out of the company. In the financial year 2014-15, even as the Sensex at the Bombay Stock Exchange rose by 25 per cent, share price of RIL fell 11 per cent.

Experts feel that the company’s stock performance has been weak and future return on equity also looks weak. “Earlier, RIL used to be in the portfolio of every shareholder but now there are lot of investor portfolios without RIL being a part of it. Most of company’s businesses are commodity led and ROE’s do not seem to be improving. Even the telecom which looked like a game changer in the past does not promise too much,” said the research head of a leading brokerage firm.

Between 2006 and 2010 the company witnessed a sharp rise in the number of shareholders — first in 2007-08 on account of IPCL merger and then in 2009-10 when Reliance Petroleum was merged into Reliance Industries. As a result of the two mergers, the company’s shareholder base had jumped from 20.04 lakh in March 2006 to 35.6 lakh in March 2010.

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