Retail investors exiting the market

Promoters have raised their holdings in India’s top companies in the quarter ended September 2007 whereas household investors continued to reduce their direct exposure to equities for a fifth straight quarter.

According to Morgan Stanley, as per the ownership data for India’s top stocks, households have been buyers of these top companies stocks in only six out of the past 26 quarters. In contrast, FIIs have been buyers in 17 out of the past 26 quarters. Observers say this would suggest that retail investors haven’t really participated in a big way in the huge stock market rally in the past few months as the BSE index crosses the 20,000 mark.

This data also shows that institutional investors were marginal net sellers of these stocks after buying them in the previous quarter. Institutional investors, including domestic mutual funds, foreign investors and local institutions, reduced their stake in these 75 companies by 20 basis points.

Following this quarter’s data, FII holdings in India’s top companies are now about 120 basis points off the high hit two years ago. Just like the previous 10 quarters, bulk of the FII inflows during the quarter ended September went into stocks outside the top 75 with a surge into small- and mid-cap stocks. The flows into the stocks outside the top names aggregated to a whopping $8.4 billion, the best ever and 82% higher than in the previous quarter, says Morgan Stanley.

FIIs continue to occupy the position of the second largest investors in the country after controlling stakeholders.Domestic investors were distinctly less enthusiastic about buying stocks during the quarter ended September with domestic mutual funds and households selling stocks. Domestic households have been shifting their direct ownership of stocks into owning equities via mutual funds. They reduced their stake by 37 basis points, taking the cumulative reduction to 8.7% since 2001.

Via ET