Holdings in mid-and small-cap companies trimmed in the third quarter.
With the stock markets falling consistently, institutional investors have started moving their money from small- and mid-cap companies to the large-cap ones.
An analysis of the third quarter (October to December) results of the Bombay Stock Exchange (BSE) – 500 companies confirms this trend. “Flight to safety seems to be prime focus of investors in the current turbulent times, resulting in a clear shift from mid-cap to large-cap companies,” Kamlesh Kotak, vice president (research), Asian Market Securities, said.
With leading world economies already in recession, institutional investors fear that small- and mid-cap companies may suffer the most because they lack the necessary expertise or reputation to raise money, which could stifle their growth prospects in the near future.
Out of 489 companies covered in the study, institutional investors have reduced their holdings in two-thirds of the 397 companies, whose market cap is less than Rs 5,000 crore. Out of the rest 92 companies, institutions raised their holdings in 55 firms, which have a market cap of above Rs 5,000 crore.
| SEEKING SAFETY IN LARGE CAPS Synopsis of changing shareholding pattern during Q3FY09 (BSE 500) | ||||
| Market Cap (Rs cr) | Institutional Holding (No of companies) | |||
| Increase | Decrease | No change | Total | |
| <500 | 25 | 82 | 2 | 109 |
| Between 500-1000 | 33 | 80 | 3 | 116 |
| Between 1000-2000 | 37 | 56 | 0 | 93 |
| Between 2000-5000 | 35 | 44 | 0 | 79 |
| Between 5000-10000 | 23 | 13 | 0 | 36 |
| >10000 | 32 | 23 | 1 | 56 |
| Total | 185 | 298 | 6 | 489 |
| Source: Asian market securities | ||||
Two important events also contributed to this shift. The first was the fall of financial institutions like Lehman Brothers and the bailout package for American Insurance Group (AIG) in mid-September. This fuelled widespread fears that economies across the globe are going into recession.
The other event came a fortnight before the third quarter ended: Satyam Computers’ intention to merge with Maytas (foiled by the institutions next day) in mid-December caused a lot of flutter among institutions due to corporate governance issues.
“The recent imbroglio of Satyam Computers is haunting investors as issues of corporate governance, transparency and management quality have taken centre stage now,” added Kotak.
While domestic institutional investors have increased their stake in 60 per cent of the companies in the Rs 5,000 crore market cap category, they reduced their holdings in 66 per cent of companies in the below Rs 5,000 market cap category.
FIIs, on the other hand, have sold almost uniformly, irrespective of size or market cap. For over a year, they have been net sellers. Even in the third quarter, they were sellers of Rs 20,000 crore.
FIIs have reduced their stake in 63 per cent of companies with a market cap of less than Rs 5,000 crore.
Even for firms with a market cap of Rs 5,000 crore-plus, their stake fell in 60 per cent of companies.
Praveen Chakravarty, head (sales) at BNP Paribas Securities, said FIIs increased their stake in select companies, which were less volatile and more transparent.
