Retail investors don’t seem to be directly making the most of the five-year bull run in the country’s stock markets.
A Mint study of the shareholding pattern of some 1,000 listed companies, ever since the start of the current bull run in April 2003, confirms this trend. Public shareholders have reduced their stake in nearly half of the firms constituting the broadly tracked indices: the Bombay Stock Exchange’s Sensex and the National Stock Exchange’s S&P CNX Nifty. The Sensex, the leading barometer of Indian stock markets, is a basket of 30 blue-chip firms while the Nifty is a broader index of 50 firms.
Of the 25 Sensex companies for which shareholding patterns are available for the period between 31 March 2003 and 31 March 2007, just about half, or 12, have seen a fall in public shareholding. In the case of the Nifty, 21 of the 44 such companies for which data is available, have seen a drop in public shareholding.
On 31 March 2003, the BSE Sensex closed at 3,048 points. The index has risen 300% to 13,072 points as on 31 March 2007. The aggregate market capitalization of the Sensex companies has gone up from Rs3.21 lakh crore to Rs18.34 lakh crore during this period.
Analysts give a variety of reasons for this decline in public shareholding, including the general short-term nature of Indian individual investors, the growing popularity of mutual funds (MFs) as well as the proliferation of foreign institutional investors looking to piggyback on the Indian growth story.
While this study can’t quantify when individual investors sold their stakes, not staying put in some of these indices has meant that individual investors didn’t quite gain—at least directly—from the sharp growth in the Sensex. Meanwhile, most recent regulatory policies, such as rating of initial public offerings, are being driven by the belief that the growing number of individual investors need to be protected.
To be sure, the fall in public shareholding in stocks does not necessarily mean that individual investors are staying away from the market. They could very well be investing in these stocks through MFs, for example. Indeed, holdings of MFs in these companies have gone up during this period.
Says Dinesh Thakkar, managing director of Angel Stock Broking: “Over the past few years, foreign investors’ participation in Indian markets has increased. At the same time, a new set of investors is taking the mutual-fund route to enter the market. These investors are owning companies indirectly through domestic mutual funds.”
Out of the 25 Sensex companies, 16 have seen an increase in the stakes held by domestic MFs of between 0.06% and 13%. Similarly, 28 Nifty companies have seen a rise in the stakes held by domestic funds.