Information asymmetry and the ability to analyse a stock becomes clear if the response of retail and institutional investors to Jet Airways (India) Ltd’s unravelling financial woes is tracked during the last financial year.

Data from BSE showed that institutional investors—mutual funds and foreign portfolio investors (FPIs)—were steadily losing confidence in the beleaguered airline since December 2017. FPIs and fund houses cut their stakes to 3.58% and 1.47%, respectively as of end-March, from 9.65% and 4.96% respectively in 31 March 2018.

Meanwhile, retail investors, who traded in lot sizes of less than 1 lakh, raised their stakes every quarter.

Such investors held 11.42% in Jet Airways as of March-end, sharply rising from 4.9% as of 31 March 2018.

“It is difficult to comment on the difference in the behaviour of the two category of investors. It is a typical retail investor behaviour. They tend to bet on individual stock when they are cheap without going into other aspects. They see a value, some upswing which an institutional investor may not necessarily see. On the other hand, institutional investors need to take a decision as they are guided by a higher sense of responsibility," said a fund manager, who did not wish to be named.

Since 2017, the Securities and Exchange Board of India (Sebi) has been taking steps to safeguard retail investors while trading in equity markets, specifically derivatives. It introduced and proposed steps than prevent or dissuade them from taking higher exposure in derivatives or so-called “speculative trading".

The behaviour of institutional investors has been in stark contrast with the way retail investors viewed Jet.

At the end of December 2017, 27 funds cumulatively held a 9.65% stake in the carrier and 73 FPIs held 4.96% stake.

One-third of these institutional investors have exited the stock at the end of March. The number of FPIs in the stock has fallen to 30 holding only 1.47% equity in the airline. Only two mutual funds held a 3.58% stake combined.

The top public shareholder was Aditya Birla Sun Life Mutual Fund which held more than a 3% stake across six schemes.

Jet Airways operated its last flight on 17 April before it suspended operations due to a severe cash crunch. In Thursday’s trading session, Aditya Birla MF sold shares 7,59,854 shares worth 13 crore in a block deal.

“As of today, Aditya Birla MF holds very negligible stake in Jet. As the situation stands today, the future of Jet is up in the air. This is perhaps the reason why fund houses do not see any value," said a person with knowledge of the matter.

A spokesperson for Aditya Birla MF said it does not comment on specific stocks.

Interestingly, the exit of institutional investors began soon after cracks started to appear in Jet Airways.

The airline first deferred salary payments to its employees in March 2018. Since then, it has defaulted in making payment to the banks, financial creditors and operational creditors including aircraft lessors. On the other hand, retail investors increased their holdings from 89,686 shares in March 2018 to 1,37,524 shares.

Information asymmetry and the ability to analyse a stock becomes clear if the response of retail and institutional investors to Jet Airways (India) Ltd’s unravelling financial woes is tracked during the last financial year.

Data from BSE showed that institutional investors—mutual funds and foreign portfolio investors (FPIs)—were steadily losing confidence in the beleaguered airline since December 2017. FPIs and fund houses cut their stakes to 3.58% and 1.47%, respectively as of end-March, from 9.65% and 4.96% respectively in 31 March 2018.

Meanwhile, retail investors, who traded in lot sizes of less than 1 lakh, raised their stakes every quarter.

Such investors held 11.42% in Jet Airways as of March-end, sharply rising from 4.9% as of 31 March 2018.

“It is difficult to comment on the difference in the behaviour of the two category of investors. It is a typical retail investor behaviour. They tend to bet on individual stock when they are cheap without going into other aspects. They see a value, some upswing which an institutional investor may not necessarily see. On the other hand, institutional investors need to take a decision as they are guided by a higher sense of responsibility," said a fund manager, who did not wish to be named.

Since 2017, the Securities and Exchange Board of India (Sebi) has been taking steps to safeguard retail investors while trading in equity markets, specifically derivatives. It introduced and proposed steps than prevent or dissuade them from taking higher exposure in derivatives or so-called “speculative trading".

The behaviour of institutional investors has been in stark contrast with the way retail investors viewed Jet.

At the end of December 2017, 27 funds cumulatively held a 9.65% stake in the carrier and 73 FPIs held 4.96% stake.

One-third of these institutional investors have exited the stock at the end of March. The number of FPIs in the stock has fallen to 30 holding only 1.47% equity in the airline. Only two mutual funds held a 3.58% stake combined.

The top public shareholder was Aditya Birla Sun Life Mutual Fund which held more than a 3% stake across six schemes.

Jet Airways operated its last flight on 17 April before it suspended operations due to a severe cash crunch. In Thursday’s trading session, Aditya Birla MF sold shares 7,59,854 shares worth 13 crore in a block deal.

“As of today, Aditya Birla MF holds very negligible stake in Jet. As the situation stands today, the future of Jet is up in the air. This is perhaps the reason why fund houses do not see any value," said a person with knowledge of the matter.

A spokesperson for Aditya Birla MF said it does not comment on specific stocks.

Interestingly, the exit of institutional investors began soon after cracks started to appear in Jet Airways.

The airline first deferred salary payments to its employees in March 2018. Since then, it has defaulted in making payment to the banks, financial creditors and operational creditors including aircraft lessors. On the other hand, retail investors increased their holdings from 89,686 shares in March 2018 to 1,37,524 shares.

Even as Jet continues to navigate turbulent weather, the stock has shown some sort of “resilience".

On Thursday, after the announcement of temporary shutdown, the stock fell 34% intraday and closed 32.2% lower at 163.90.

However in the previous six months the stock has in fact risen by 10%. Edelweiss Securities in a report on 8 April said that “While varying possibilities are emerging, including the hunt for a new buyer and/or a debt write-off, Jet Airways’ viability has taken a hit. Yet, the stock price remains firm," said Jal Irani and Vijayant Gupta, analysts at Edelweiss.

Close