Retail investors no longer fancy smallcaps; top 10 stocks that are seeing mass desertion

DELHI: Retail investors have been busy dumping smallcap stocks after some of them gained up to 47 per cent in last one year. This category of investors reduced their holdings in 671 companies in last one year but increased in 767 others, said a report compiled by Prime Database.

Top ten stocks that saw a drop in retail holdings in double digits during the quarter ended June 30 included Ashima, Shree Rama Newsprint, MIC Electronics, Alankit, Rajrayon Industries, Gujarat NRE Coke, Polaris Consulting, Orient Abrasives, Sujana Metal Products and Future Enterprises.

“At an aggregate level, it may be true that the exits are happening in stocks that rose too fast too much, which enticed retail investors to exit at the best prices available. But those very stocks had indeed seen turnarounds to figure on the charts of top yearly gainers,” Jimeet Modi, CEO, SAMCO Securities, told ETMarkets.com.

“Retail investors are getting tired of holding on to the smallcap stocks. They jumped to get out at the first opportunity, without analysing the renewed fundamental changes that had occurred in the intervening period,” he said.

“These emotional exits are the root cause of the reduction in retail holdings,” Modi said.


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Some analysts called it as business as usual. Retail investors who want to make a quick buck often enter smallcap stocks and exit after booking small gains to probably re-enter when the prices fall.

Retail investors usually have bigger holdings in smallcap stocks as these scrips do not get enough attention of institutional investors. But as and when their sizes grow, institutional clients start investing in them and that comes as a big booster for them.

"This is a dynamic situation, because the relative mix keeps on changing. The retail holding would have gone up as well, when it has come down in a few other cases. But there are cases where because of their small sizes, many stocks have not received the attention of institutional investors,” Pankaj Sharma, Head of Equities, Equirus Securities, told ETMarkets.com.

"However, as they grow bigger, institutional buyers’ interest in them increases and if the promoters are not sellers, the flows from retail investors keep on increasing too,” he said.

New-age investors going in for SIPs

There is no correlation between a fall in retail holding and increase in investment in equity mutual funds, but analysts say investing habits are changing slowly, especially with new-age investors.

Most retail investors have started investing in equity via systematic investment plans (SIPs), which are far more superior products for wealth creation than direct equity.

However, the new-age investors are more educated and are more logical in their approach when it comes to trading. They have started putting in money via mutual funds to avoid risks. The size of SIP investment by investors has grown to approximately to Rs 3,000 crore from Rs 1,000 crore two years ago.

“There seems to be no change in the habits of traditional retail investors. They buy during hysteria and sell during panic situation. They buy penny stocks and trade for the short term. However, new-generation investors follow good practices,” said Modi of Samco Securities.