Increasing uncertainty over the global economic outlook, sinking faith in the government?s ability to push through policy reforms, corporate governance issues and expectations of a subdued first quarter earnings season seem to have forced retail investors to take a cautious approach.
According to Bloomberg data, retail investors have been gradually trimming their holdings in the Bombay Stock Exchange?s top 200 companies in the quarter ended June 30. As many as 107 (or 53.5% of BSE 200) companies have witnessed a fall in retail investor shareholding during the quarter in a market that is currently directed by foreign investors.
Further, out of the top 200 companies, nine companies have witnessed no change in their retail shareholding, while 83 saw an increase in retail shareholding, albeit only marginally.
?Small investors have been using every rally as an opportunity to book profit and exit the market. Overseas money is mainly driving the market at present,? said Ambareesh Baliga, COO of financial services firm Way2Wealth.
Some sectors that have seen a decline in retail shareholding are auto and auto ancillaries, aviation, consumer goods, gems and jewellery, IT and pharmaceuticals.
?Market is still in a cyclical stage and during this phase, one cannot expect the investor sentiment to turn positive,? said an analyst with Edelweiss Securities.
However, experts said that one should take these sectoral changes with a pinch of salt as retail investors have increased their holdings in companies that have below market valuations and potential earnings growth opportunities.
Suzlon Energy, for instance, has seen a 4.23% increase in retail participation because the stock has dropped to multi-year lows.
?It is a bottom-up market, where investors focus on individual stock-picking, instead of putting their entire capital in one sector,? said Dipen Shah, head of fundamental research, Kotak Securities.
Shah pointed that within banking or engineering sector, HDFC Bank, ICICI Bank and L&T are some scrips that have gained 30% y-o-y as the stocks have reached decent valuations, while their fundamentals are strong and the risk is low in terms of earnings growth.
Experts said that euro zone concerns continue to prevail, while the market is growing cautious about the US fiscal cliff and the hard landing of the Chinese economy, which together could spark another financial crisis as great as the 2007-08 crisis. On the domestic front, investors have been worried about growing fiscal deficit and the government?s inability to address policy issues.
