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Retail investors raise stake in poor stocks hoping for a turnaround

"Retail investors should not get into these companies and not bottom-fish,” said Sofat of IIFL.

, ET Bureau|
Updated: Jun 26, 2019, 09.38 AM IST
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Many retail investors hold on to these stocks in the hope that fundamentals will turn around.
Retail investors’ holding in some of the worst performing stocks this year from the BSE 500 index has seen a steady increase. Some of these companies are ailing but analysts have been tempted by falling prices, mistaking falling prices for cheap valuations. “Retail investors are not able to understand the extent of the problem in these companies. Typically, they benchmark their view on stock price than fundamentals, which have deteriorated in case of these companies,” said Abhimanyu Sofat, head of research at IIFL. “If fundamentals deteriorate, even at lower prices a stock may be expensive. Retail investors should not get into these companies and not bottom-fish,” said Sofat.

Reliance Communications has seen retail holding rise to 37.15 per cent as a percentage of total shareholding in the March quarter from 21.4 per cent in the September quarter. The stock has fallen more than 90 per cent in the current calendar year. Similarly, other stocks from Anil Ambani’s Reliance Group have seen retail shareholding increasing over the last three quarters. Reliance Infrastructure’s retail stake slipped marginally in the December quarter from 9.58 per cent at the end of September but spiked to 14.2 per cent in the March quarter. Jet Airways (India), Dewan Housing and Jaiprakash Associates have also seen retail shareholding rising. These stocks have slumped over 50-70 per cent this year. HEG and Graphite India have also seen share price falling and a reduction in retail shareholding but analysts said this is because of outperformance over the last few years.

“Retail investors have been buying shares which have been offloaded by either the institutional players or promoters — both of whom are probably better informed. Most retail investors are averse to booking loss on their portfolio holdings when they see prices of their holdings drop; they would typically look at adding or averaging out their positions irrespective of the reasons for fall in share price,” said Deepak Jasani, head of retail research at HDFC Securities.

Stock snip 3

Many retail investors hold on to these stocks in the hope that fundamentals will turn around.

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