Thousands of crore of equity wealth at risk as retail bets in ‘falling knives’ hit record
DHFL on Thursday reported a net loss of Rs 242 crore for September quarter.
For every ‘sell’ order, there is a ‘buy’ order in the market.
With promoter or institutional holding declining, causing stocks to plunge up to 90 per cent this year, retail participants are showing strong interest lured by the perception of the stocks being available at 'cheap'.
Retail investor interest in many of these ‘falling knives’ is so much that their aggregate holdings have climbed multiple times in last few quarters to hit record levels.
This puts thousands of crores of retail investors’ money at risk, as analysts do not see chances of many of these stocks reverting to mean anytime soon. In fact, some of these stocks have either seen or are likely to see permanent derating.
Retail holding in Jaiprakash Associates was at a record high of 32.6 per cent at the end of September quarter, even when the scrip is down 73 per cent year to date.
In Suzlon Energy, retail holding hit 30.5 per cent in September quarter, a record, even as the scrip has fallen 54 per cent so far this calendar. Retail investors held 29 per cent stake in Suzlon at the end of June quarter and 27.7 per cent at the end of September quarter last year.
YES Bank shares are down 77 per cent year to date. But retail holding on this counter has gone up by over three times to hit a record 27.4 per cent at the end of September quarter from 8.5 per cent in the year-ago period.
In the case of Reliance Capital, retail holding stood at 27 per cent at the end of September quarter, being the highest level since 2004, as the scrip slipped 94 per cent for the calendar year. Retail holding in this stock was just 13.4 per cent in the year-ago quarter.
DHFL on Thursday reported a net loss of Rs 242 crore for September quarter. The company is yet to disclose shareholding data for the quarter. But data showed retail holding in the housing finance major stood at a record high of 28.3 per cent at the end of June quarter.
This stock is down 92 per cent year to date, but its retail holding has gone up four times from 7.2 per cent at the end of June quarter. This is even as the HFC came under financial stress since the second half of the previous financial year. It has seen multiple cuts in ratings since February.
In the case of Reliance Communications, retail investors held a record 30.9 per cent stake at the end of June quarter compared with 25.5 per cent in the year-ago period. The company has not reported its shareholding pattern yet. The stock is down 94 per cent this calendar.
A recent study by ICICI Securities suggested that only eight of 228 stocks that corrected more than 75 per cent from their peak levels have returned to their previous high levels. Once the original thesis about the attractiveness of a business changes, it results in a permanent derating of the stock, analysts said .
“Just going out and seeking value because a stock is cheap never works. This is something we do not learn. Buying something when it is cheap and when it is likely to transform is when it will work,” Dipen Sheth of HDFC Securities told ETNOW.
“We have seen that play out repeatedly in stocks which have imploded from the top, particularly in levered financial stocks. Financial stocks by definition are leveraged, be it DHFL or a Yes Bank. If there is governance or structural problem, if there is an ‘unknown’ unknown, there is no way you can make money on such ideas,” Sheth said.
This trend was seen at a time when even the gap between the market value of the biggest company in the sector and the second biggest one has widened sharply in last two years, as investors showed preference for the sectoral leaders in challenging times, ET reported.
In the past two years, several sectors such as IT, banking, auto and steel have seen shares of the top companies outperform those of their nearest rivals. Market participants say investors perceive the biggest sectoral players as less prone to margin and revenue pressures in times of a downturn.