Retail investors make Rs 1.9-lakh cr in market rally

Promoters walk away with Rs 13 lakh crore.

BL Research Bureau Stock price gains have generated crores of rupees in notional wealth for investors holding on to equities so far this year. However, only a small slice of this may have accrued to retail investors.

Stocks in the BSE 500 added over Rs 24-lakh crore in market capitalisation in 2009, mainly through price gains. Of this notional wealth, retail investors saw an accretion of Rs 1.9 lakh crore, while promoters of India Inc walked away with over Rs 13 lakh crore.

These numbers are based on the shareholding patterns of the BSE 500 companies, which account for nearly 94 per cent of the total market capitalisation on the exchanges.

Lion’s share for promoters

Across-the-board gains in stock prices have expanded the market value of the BSE 500 stocks from about Rs 29-lakh crore at the start of this year to about Rs 53-lakh crore now. It is the promoters, holding 56.7 per cent of the market cap of these companies, who raked in the lion’s share of this wealth. That’s probably one reason why the Forbes Rich List released last week showed a doubling of the number of Indian billionaires!

Next in the line of beneficiaries were Foreign Institutional Investors (FIIs) that saw the value of stocks held shoot up by Rs 3.6-lakh crore. Domestic institutions — mutual funds and insurance companies — saw a Rs 2.2-lakh crore addition to their assets from the rally. Individual investors can probably take heart from this, as it is retail savings that domestic institutions redirect into the stock markets.

The accretion to market capitalisation, or notional wealth mentioned above, is a function of both the increase in the number of shares held by investors and the price gains on their stocks, though the latter accounted for the bulk of the gains. Adjusting for changes in the shareholdings, the FIIs pipped all other classes of investors in generating stock price returns. The FIIs saw an 80 per cent stock price appreciation on their holdings between January 1 and now, while retail investors saw a 75 per cent appreciation.

Retail investors cash in

The numbers show that company promoters continue to hold a sizeable, 56.7 per cent, stake in the market capitalisation of the BSE 500 companies (based on end-September 2009 data), even after selling into the rally this year. The FIIs own 13.9 per cent of the market cap, having hiked their stakes from 12.8 per cent at the start of 2009. Domestic institutions too have added to their holdings, and now own 9.1 per cent.

Retail investors, who now hold about 8 per cent of the outstanding market value, have marginally reduced their equity stakes since January. Consistent selling by retail investors over the past few months suggests that they may have used rising stock prices to convert a portion of their equity holdings into cash.