A majority of small- and mid-cap companies saw a dip in the quantum of stake held by retail shareholders during the fourth quarter when the BSE MidCap index lost nearly 11 percent and the BSE SmallCap declined 15.5 percent even as BSE 100 dipped less than two percent.
According to a recent analysis of shareholding data by Moneycontrol, a little over 56 percent of the companies in BSE MidCap index saw the retail stake fall while it was pegged a little over 51 percent in the BSE SmallCap universe.
Data shows that out of 137 midcap companies, a little over 56 percent (77 companies) witnessed a decrease in retail shareholding – investors holding up to Rs 1 lakh worth of shares.
Similarly, among retail investors holding more than Rs 1 lakh worth of shares, a little more than half of the firms (69 companies) saw a decline with only around 26 percent (35 companies) experiencing an increase with the balance seeing no change.
Meanwhile, out of 979 small-cap companies, 501 experienced a decline in stake held by shareholders with shares worth Rs 1 lakh. Further, 449 firms saw a decrease in stake of shareholders whose value of stake exceeded Rs 1 lakh.
On the other hand, nearly 48 percent (467 out of 979) reported an increase in shareholding in the up to Rs. 1 lakh category, while nearly 42 percent (409 out of 979) saw an increase in the more than Rs 1 lakh category.
Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, is of the view that the overall decline in retail shareholding is a clear reaction to the market downturn and an indicator that most retail investors lack basic investing knowledge and are merely trying to ride the trend.
However, he adds that going forward, things could change. “With a few days of positive market moves recently, some retail investors would have already started entering... but given the current situation and a potential India-Pakistan counter, it is likely that retail investors will remain cautious or sell some more," he adds.
In Q4, the BSE Midcap lost 10.6 percent, the BSE Smallcap declined 15.5 percent, and the BSE 100 index fell 1.9 percent.
On the small and midcap space, Trivesh D, COO at discount broking firm Tradejini says that markets have gotten a reality check in the small- and mid-cap space after a one-way rally post-COVID.
"Over the last three quarters, retail investors have trimmed their holdings across 63 small- and mid-cap names, with cuts ranging from 20 to 61 percent. But it is important to note, this is not panic selling. It is more about earnings missing expectations and valuations that had run too far ahead of fundamentals," he explains.
Trivesh further adds that even now, the profit contribution from these stocks to the total market cap remains quite low, highlighting a valuation-fundamentals mismatch. "Going ahead, investors need to be highly selective. India’s broader growth story is intact, but that doesn't mean every smallcap deserves a premium," he suggests.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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