Author: Nooresh Merani

An older article on my Blog. Why do Traders Go Bust and Investors Get Lost !!

The only way one can explain Retail Investor increasing in Kingfisher Airlines is – Hope for Good Things to happen !!

KINGFISHER AIRLINES	SHAREHOLDERS
Retail Shareholders (2008-2018)	No. of Shareholders	No. of Shares
March 31, 2008 (1L)	50,098	73,52,296
March 31, 2009 (1L)	64,730	1,26,90,145
March 31, 2010 (1L)	81,311	2,02,79,212
March 31, 2011 (1L)	95,421	2,66,73,862
March 31, 2012 (1L)	1,35,547	5,51,99,258
March 31, 2013 (1L)	2,30,069	16,64,78,828
March 31, 2014 (1L)	2,33,242	19,73,99,714
September 30, 2014 (1L)	2,33,393	21,16,70,473

· Shareholders holding upto 1 lakh paid up capital went up from 50k in 2008 to 2.3 lakhs in Sept 2014.

· In March 2012 there were 1.35 lakh shareholders and by September 2014 there were 2.3 lakh.

· The terrible part number of shares from 2012 to 2014 went up from 5.5 crores to 21 crores !!

Deja Vu – Jet Airways

5-7 years later we have another airlines – Jet Airways

The behaviour just does not change.

Jet Airways	SHAREHOLDERS
Retail Shareholders (2008-2018)	No. of Shareholders	No. of Shares
Mar 31 , 2018	89,686	48,69,633
Jun 30 , 2018	1,11,969	85,16,697
Sept 30, 2018	1,25,844	1,11,52,359
Dec 31, 2018	1,29,246	1,13,19,064
March 31 , 2019	1,37,524	1,29,72,794

From 4.29% of equity to 11.42% of Equity now with Retail Shareholders!! A total of 1,37,524.  ( less than 2 lakh share capital.)

The sad part is we had 2.3 lakh retail shareholders in Kingfisher but a company like Kotak Mahindra Bank has 2.23 lakh retail shareholders !!

Doing a quick check we see a Pidilite , Bata , Voltas and many known companies have lesser retail shareholders ( 2 lakh capital ) compared to a 1,37,524 of Jet Airways. Many smaller companies with longer track records have barely 5k-50k retail shareholders.

Will this ever change ?

The value of assets held by individual investors in mutual funds increased from Rs.11.66 lakh cr in March 2018 to Rs.13.54 lakh cr in March 2019, an absolute increase of 16.08%.

 

In March 2019, 23% of assets held by individual investors is from the B30 locations. 6% of institutional assets come from B30 locations. Institutional assets are concentrated in T30 locations, accounting for 94% of the total.

The proportion of direct investments in equity, to the total assets held by individual investors, was about 8% in March 2019.

Only 12% of the Individual Investor money in Equity Mutual Fund comes through the direct route out of that 10% comes through the direct route in T30 cities.

Geographical Spreads

Interesting to see – Manipur, Nagaland, Arunachal Pradesh, Andaman and Nicobar, Tripura, Sikkim, Mizoram and other smaller states slowly getting penetrated but are still miniscule ranging from 300-1200 crores.

SIP Data

Indian Mutual Funds have currently about 2.62 crore (26.2 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes.

AMFI data shows that the MF industry had added about 9.13 lacs SIP accounts each month on an average during the FY 2018-19, with an average SIP size of about ₹3,070 per SIP account.

One way to source for ideas to research is to look for promoters increasing stake in their companies.

Insider Trading Disclosures - You can download the historical disclosures from the following link. ( Select the dates and click on the download button in the corner )

https://www.bseindia.com/corporates/Insider_Trading_new.aspx#

We have just highlighted the interesting insider trades in the last 1 year.  ( have only focused on entries where promoters have done a direct market purchase.)

Interesting Insider Trades 2018

No recommendations.

 

Some snapshots from a Kotak Report

 

The re-rating of ‘growth’/‘quality’ stocks (see Exhibit 14) and de-rating of ‘value’ stocks (see Exhibit 15) has continued for a long time and we are at a loss to explain the continued mismatch in the price-value equation for the two sets of stocks for such a long period of time. Our previous thesis regarding high correlation between global bond yields and
earnings yields of ‘quality’ stocks has been deflated by the continued fall in earnings yields of ‘quality’ stocks even at the time of rising global bond yields. Anyway, the argument about a potential de-rating in multiples of ‘quality’ stocks on the back of higher global bond yields
may no longer be valid as global bond yields will likely stay subdued due to a synchronized global economic slowdown.

Lastly, certain so-called ‘value’ companies have found new ways to disappoint investors on corporate governance, thereby
making the valuation argument largely redundant for such stocks.
It seems to us that the market has simply taken a ‘permanent’ view on the future of most companies, thereby effectively segregating companies into (1) long-term winners; these are companies with superior business models, trustworthy managements/promoters and good corporate governance practices where no price or valuation may be too high to own the
stocks and (2) long-term losers; companies with inferior business models and poor governance practices where no price or valuation may be too low to avoid the stocks.

Our comments in brackets.

Primary Market Issuances in 2018.    ( Issuances peaked out in 2017 )

Nifty Valuations - Using P-E for Non-Financial and P/B for Financial Companies.  ( Interesting take on valuing Nifty.)

Indian Equities strongly correlated to S&P 500 !!   ( More co-related to US than Asia)

Indias Contribution to World Market Cap - Higher than Average but lower than the highs.

Nifty EPS estimates - Motilal Oswal    ( Estimates have been wrong through 2014-2018 for all brokers. Will it be finally right ? )

Emerging Market ETF Flows    ( Is the tide finally turning for Inflows to India)

Market Cap Wise Performance in CY 18 - ( Huge divergence in large caps to broader market - Can it reverse in CY 19 )

The Power of Retail Investors    ( 2019 will be the real test for Retail Behavior in MFs)

(Midcaps Premium to large caps finally reducing but still higher. )

Hotel Valuations around the World - Kotak 

SEBI Categorization of Large Cap/Midcap and Smallcap.

SEBI in its circular https://www.amfiindia.com/Themes/Theme1/downloads/1507291273374.pdf has come out with a way of defining large-caps/midcaps/small-caps.

Observations from - Semi-Annual Review – Stock Mcap Classification
(AMFI Release-Jan-19) by Edelweiss

 

Analyse India Observations 

• There are 1624 companies in the NSE and 4649 companies on BSE as per the data.
• The cut-off for companies to be a Mid-Cap is 8600 crores. Any company less than that is a Small-cap.
• There are just 779 companies with an average 6 month market-cap higher than 1000 crores. So roughly around 529 companies in the band of 1000 to 8500 cr market cap.
• There are approx. 1700 companies with an average market cap of 100 cr.

The Contrast of AMFI/SEBI Categorization with NSE  Indices. 

The categorization is based on 6 months average Full Market Cap.

This is a stark contrast to the fact that all Mutual Funds are benchmarked to indices which have a free float market-cap methodology.

( Free Float Market Cap gives a higher weight to companies with lower promoter shareholding )

Another contrast is SEBI/AMFI wants low churn by Fund Managers and trying to limit the number of schemes etc and want them to be long-term investors but expect them to re-balance every 6 months on basis of price movements.

( Rule - Subsequent to any updation in the list, Mutual Funds would have to rebalance their portfolios (if required) in line with updated list, within a period of one month. )

The categorization of Stocks changes every 6 months and there is no limit to it. So a lot of stocks will keep changing from Large Cap to Midcap or Midcap to Smallcap and vice versa in the categorization.

In contrast, Nifty Index constituents can change every 6 months but have a limitation of only 10% of the constituents to be changed in a year for Nifty. Also replacing stock has to 1.5x free float market cap to the lowest weighted stock. For example, Nifty 500 can make 50 changes in a year and Nifty50 can do 5 changes in a year.

This difference of in categorization will keep leading to a major difference in Midcaps as per AMFI categorization and Midcap/Smallcap as per the NSE Indices.

Funds now have another headache as benchmarks and AMFI classifications do not match.

( An interesting read - http://www.analyseindia.com/midcap-funds-underperformed-in-2017-because-of-vakrangee-limited )

The difference in the categorization of Nifty Indices with AMFI categorization. 

12 Stocks of Nifty Midcap 100 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

MANAPPURAM	Manappuram Finance Ltd.
MGL	Mahanagar Gas Ltd.
ENGINERSIN	Engineers India Ltd.
VGUARD	V-Guard Industries Ltd.
RELCAPITAL	Reliance Capital Ltd.
TV18BRDCST	TV18 Broadcast Ltd.
PRESTIGE	Prestige Estates Projects Ltd.
VAKRANGEE	Vakrangee Ltd.
AVANTIFEED	Avanti Feeds Ltd.
PCJEWELLER	PC Jeweller Ltd.
DBL	Dilip Buildcon Ltd.
SPARC	Sun Pharma Advanced Research

6 Stocks of Nifty Midcap 100 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

 

DIVISLAB	Divi's Laboratories Ltd.
UBL	United Breweries Ltd.
PAGEIND	Page Industries Ltd.
IBVENTURES	Indiabulls Ventures Ltd.
BERGEPAINT	Berger Paints India Ltd.
LTI	Larsen & Toubro Infotech Ltd.

18 Stocks of Nifty Midcap 150 are classified as Small Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

AVANTIFEED	Avanti Feeds Ltd.
BLUEDART	Blue Dart Express Ltd.
DBL	Dilip Buildcon Ltd.
ENGINERSIN	Engineers India Ltd.
FINCABLES	Finolex Cables Ltd.
GET&D	GE T&D India Ltd.
JMFINANCIL	JM Financial Ltd.
KRBL	KRBL Ltd.
MGL	Mahanagar Gas Ltd.
MANAPPURAM	Manappuram Finance Ltd.
PCJEWELLER	PC Jeweller Ltd.
PRESTIGE	Prestige Estates Projects Ltd.
RELCAPITAL	Reliance Capital Ltd.
SPARC	Sun Pharma Advanced Research
SYMPHONY	Symphony Ltd.
TV18BRDCST	TV18 Broadcast Ltd.
VGUARD	V-Guard Industries Ltd.
VAKRANGEE	Vakrangee Ltd.

8 Stocks of Nifty Midcap 150 are classified as Large Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

BAJAJHLDNG	Bajaj Holdings & Investment Ltd.
BERGEPAINT	Berger Paints India Ltd.
DIVISLAB	Divi's Laboratories Ltd.
GSKCONS	GlaxoSmithkline Consumer
IBVENTURES	Indiabulls Ventures Ltd.
LTI	Larsen & Toubro Infotech Ltd.
PAGEIND	Page Industries Ltd.
UBL	United Breweries Ltd.

 

10 Stocks of Nifty 100 are classified as Mid Cap by AMFI classification based on SEBI Circular dated Oct 6, 2017

ABB	ABB India Ltd.
ACC	ACC Ltd.
ABCAPITAL	Aditya Birla Capital Ltd.
BEL	Bharat Electronics Ltd.
BHEL	Bharat Heavy Electricals Ltd.
LICHSGFIN	LIC Housing Finance Ltd.
NHPC	NHPC Ltd.
OIL	Oil India Ltd.
SRTRANSFIN	Shriram Transport Finance Co. Ltd.
SUNTV	Sun TV Network Ltd.

 

Some of the interesting Insider Trading Disclosures from 1st Jan to 31st March 2018.

Insider Trading Dislcosures Analyse India 

We keep looking at Insider Trading/Bulk Deals for looking at interesting action and not necessarily buy or sell because of Insider Trading.

Although Insiders buying in a bear market has helped us pick interesting names a few years back.

Disclosure - No views on any of the stocks above and no recommendation. Please do your own research.