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| Relation between fall in share price and rise in retail shareholding. |
Rise in Individual shareholding
and fall in price, understanding the relation.
Article published as on Sunday, 8th
April, 2020 at 3:00 a.m.
I have read various articles which
state that when share price falls along with high increase in retail holding
it’s a warning sign. I was given many examples but no explanation why this
happens? I always asked for logic behind this relation in my mind.
Finally I found something which
connected the dots and made me understand WHY? And I will be sharing the same
with you.
(Note - companies have been taken here
only as an example.)
In May 2019 national elections the
voter turnout ratio was 67.11%
But when we look at voting percentage
of HDFC bank at its AGM resolution by
public non-institution investors (Individual shareholders) it was just 5.5%
And situation is similar across the
board- lower participation by individuals in voting of resolutions.
This is important for our topic-
relation between share price fall and rising retail holding.
As one share one vote theory applies
here, making it in interest of huge shareholders to vote making this ratio even
worse.
Point I want to make here is that
individual shareholders don’t participate actively, EVEN when we have e-voting
system and in national election one has to stand in ques.
This is all because of lack of
awareness among investor regarding their rights and duties.
Institutions on the other hand have
been mandated to vote on resolutions by SEBI. And they can outsource this
work from proxy advisors.
Yes bank’s example see the table
below
|
Yes bank |
12-june-2019 (AGM) |
7-february-2020 (EGM) |
|
Institutions holding |
50.72% (as on 30/6/19) |
29.38% (as on 31/12/19) |
|
Institution voting % |
79.5238% |
79.2597% |
|
Public non-institution holding (individual
shareholder) |
20.46% (as on 30/6/19) |
47.96% (as on 31/12/19) |
|
Individual
shareholder voting % |
9.1448% |
4.1251% |
|
Total
voting (of
share capital) |
65.1825% |
33.3185% |
|
share
price |
134.75 |
38.7 |
-sources yes bank and BSE website.
We can see in June quarter already
individual shareholding was above 15% and then it rose even further in December
quarter data, concluding individual averaged and bought new shares, but did not
participate in voting.
This along with already present problems
was a red flag and a early warning sign for investor to be cautious.
We can understand as retail holding
goes up and voting percentage goes down it shows lack of interest in
participation of company affairs.
Thing is that institutions whenever sense
a degradation of corporate governance they can sell even at a loss and
exit. For them quality of management is much more important.
And retailers average out at lower
levels.
Companies with bad management take
benefit of this thing that retailer’s don’t participate and continue their
exploitation of company resources. Slowly institutions sell and only retailers
are left.
To conclude I would say institutions
are known as smart money and if they are selling company stake find out the
reason.
If it is due to problems in corporate
governance one should be cautious and avoid further buying.
Also companies with already 15% or more
retail holding when they fall, one should definitely look into shareholding
pattern and find if individual shareholding has risen and then if study
there is any problem with management or corporate governance.
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