Why are retail investors betting on beaten-down stocks despite market weakness?

Synopsis

Total retail holding in Central Depository Services (CDSL) went up to 51.4% in the fourth quarter from 42.3% in the October-December quarter, making it one of their biggest bets. Shares of CDSL, which had gone up 22.4% in the third quarter, had fallen nearly 31% in the March quarter

Mumbai: Retail investors were generally less gung-ho about equities in the March quarter in the wake of the market weakness in the period. But that did not stop them from lapping up some of the beaten-down names that were among the top performers for most of 2024, according to a study of retail shareholding of NSE's top 500 companies based on ETIG data.

For instance, total retail holding in Central Depository Services (CDSL) went up to 51.4% in the fourth quarter from 42.3% in the October-December quarter, making it one of their biggest bets. Shares of CDSL, which had gone up 22.4% in the third quarter, had fallen nearly 31% in the March quarter

Sunny Agrawal, head of fundamental research at SBI Securities, said all the top retail buys were the widely discussed stocks, which were in strong upward momentum during the bull run between January-September 2024.

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"During the fourth quarter, all these names corrected, and retail investors have lapped them up in the hope that it is a good opportunity to add the stocks during correction," he said. "But the reality is that the growth story of all the stocks sputtered, and hence, the stocks were offloaded by institutions and were lapped up by retailers."

Total retail shareholding in all listed companies came down to 9.67% as of March 31 from 9.99% in the December quarter. Recently-listed Indegene, Premier Energies, as well as Mastek, and India Cements were among the companies that showed a fall in retail shareholding during the quarter.

Agrawal said the decrease in retail shareholding in these companies could be due to various reasons. In the case of RBL Bank, Manappuram Finance, Navin Fluorine International and AAVAS Financiers, retail investors sold following a rally in their share prices in the quarter.

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