The big bulls on D-Street have been treading the markets with caution since September. But their “followers”—retail investors—appear to be charting their own course.
Mint analysed recent portfolio changes by nine prominent investors, including Vijay Kedia, Madhusudan Kela and Dolly Khanna, as well as retail and institutional investor activity in those same stocks.
In the October-December quarter, retail or individual investors increased or held their ownership in 63% of the stocks where these superstar investors either decreased their stakes or their holdings dropped to below 1%, show data from markets platform Trendlyne. This marks a significant jump from around 53% in the September quarter.
This contrarian behaviour is more pronounced than that of institutional investors. Foreign portfolio investors (FPIs) increased their holdings in 46% of such stocks, while domestic institutional investors (DIIs) increased theirs in 59%.
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A possible explanation for this?
“Smart investors were early movers. As the market turned riskier, they exited select stocks and likely deployed capital elsewhere. Retail investors, on the other hand, tend to enter late…” said Sandip Raichura, chief executive officer–retail broking and distribution, PL Broking.
Anand K. Rathi, co-founder of MIRA Money, offered a similar explanation.
“While experts buy early at lower prices, retail investors enter late at inflated valuations. When a stock declines, they hold on, unwilling to sell at a loss, resulting in years of poor or no returns,” Rathi said. “Most retail investors often lack the deep research that gurus do, leaving them trapped in poor investments.”
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Inexperience hurts
Portfolio shifts by major investors tend to influence stock prices. In the December quarter, the median share price of stocks in which the big bulls reduced their stakes declined by around 3%. Stocks in which they increased their holdings saw median gains of 6%.
But in 65% of the stocks in which the star investors increased or initiated their positions in the December quarter, retail investors decreased their holdings, the data show. A similar trend was observed in the second quarter, though to a lesser extent—50%.
Profit-taking could explain some of this divergence.
Retail investors often find themselves holding small-cap stocks at inflated valuations, only to see their value plummet. The vast majority of retail investors—nearly 70%—entered the market in the last three to four years, making this their first major market downturn.
Their lack of experience may explain the apparent preference for small-cap stocks in retail portfolios despite the inherent risks.
Data show that retail shareholders increased their stakes in companies like Jyoti Structures, Universal Autofoundry, Sula Vineyards, Prakash Pipes, and Tejas Networks in the Decemeber quarter. This increased retail participation coincides with significant share price drops of 15-32%.
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The recent market correction has taken its toll on such bets. Prices of stocks in which retail investors increased their positions have declined by nearly 21.4% so far this year.
“That’s what separates long-term winners from those who fade away from adaptability and risk management,” said Trivesh D., chief operating officer, Tradejini, a brokerage.
“Given the current market correction, I think caution will persist. It’s not about buying every dip but waiting for the ‘right dip’—where fundamentals and valuations align. Right now, patience and selective positioning are more important than reacting to every move in the market.”