Small investors feast on small-cap stocks

Small investors are back in the ring after the presentation of the Union Budget on February 28. The sharp rise in trading and delivery volumes in non-A group stocks suggest that small investors, who had felt left out in current bull market, are making a comeback. Most are buying small-cap stocks that are now priced below Rs 50 or so.

Trading volumes in stocks, quoting around Rs 50 levels, have risen by 26 per cent since February 28. Similarly, delivery volumes have increased by 31 per cent. Deliveries accounted for 45 per cent of the total traded volumes on Budget day. They accounted for 54 per cent of the traded volumes on March 7.

Consider too that the total market capitalisation of the Sensex stocks increased by 4.70 per cent after the Budget. The market capitalisation of small company stocks increased by over 5.50 per cent after the Budget.

Among small value stocks, the prices of as many as 14 stocks appreciated by between 105 per cent and 200 per cent after the Budget and March 7. The prices of 33 stocks gained by between 51 per cent and 100 per cent; the prices of 118 shares appreciated by 25-50 per cent.

Chandresh Shah, director at Stock Mall, a small broking firm, says that small investors are buying small-value stocks on a delivery basis. Trading volumes of Stock Mall increased by nearly 25 per cent after the Budget, Shah says.

Shailesh Trikamdas, a broker and partner at Mahesh Kumar & Company, said small investors are buying small-value stocks and booking profits in high-value stocks.

Strong foreign institutional buying has fuelled the recent rally but domestic participation has been limited though some small investors are buying low-value scrips in the hope of riding the rally, brokers added. Even domestic mutual funds have not been big buyers thus far, despite raising big money in via IPOs, market sources said.

Rajesh Kamdar, dealer at K G Vora Securities said, "The market has entered unchartered waters but the sustained rally has got many small investors to get back to the market at these levels, though they are mostly buying in small and mid-cap counters." Most investors are buying in to the market as they do not want to miss the rally, he added.

Vikram Kotak, president, Techno Shares, another broking firm, said: "The mood in the market is positive on fresh inflows from foreign as well as domestic investors and mutual funds. The highlight of the present rally is that domestic savers are turning investors in the equity market."