Small Investors Find Merit in Beaten-down Mid-caps

KFA, Suzlon Energy, Lanco Infra, Sintex among gainers as investors assume all lows are factored in  Shares of Kingfisher Airlines, Suzlon Energy, Lanco Infratech, Sintex Industries, IRB Infrastructures and Adani Power that were among the top mid-cap losers on the bourses in the quarter ended June 31, 2012 have found favour with retail investors. These companies saw a surge in retail shareholding in April-June as investors lapped up shares judging that they were cheaply valued after the declines.  Over 45,000 new retail investors bought shares of the Kingfisher, which shed 27% during the quarter to . 12 on June 29 as the company reeled under losses due to huge debt and curtailed operations.  Brokers said investors are betting that Kingfisher's share price at its lows factors in the worst for the company. They are also hoping that once the government opens up the airline sector to foreign direct investment, some foreign airline will pick up a stake in the company.  "Retail investors still seem to favour lower-priced stocks in the impression that low-priced stocks are likely to deliver more gains, while downside is limited," says Arun Kejriwal, chief executive of Mumbaibased investment consultancy KRIS. "Retail investors think, if a lowpriced stock declines over 25%, their loss in terms of actual value is smaller," he said.  A broker on condition of anonymity said the purchases have been driven by the faith that no big company in India will fail. He said the case of Satyam Computers is still fresh in investors' minds. Shares of Satyam soon after the accounting scam was exposed had tumbled to its all-time low of . 11.5 in January 2009 before the stock bounced to . 100 within six months following news of the company's acquisition by Tech Mahindra.  Though the fall in Kingfisher's share price is due to the company's weak financials unlike Satyam's case of a financial fraud, brokers said investors are expecting a stake buy in Kingfisher, whose shares have tumbled 97% from their historical high of . 335 on December 19, 2007 to . 9 on Wednesday.  "Retail investors buy lowerpriced stocks — perhaps not only because they can buy a larger number of shares, but also because of the impression that there is less to lose and more to earn in such lowpriced stocks," says Vinay Agarwal, executive director — broking business, Angel Broking.  Another stock Suzlon Energy, which declined nearly 65% in the past one year and 27% in the June quarter and is currently available at . 18.45, saw over 26,000 new retail investors.  Kejriwal has cautioned retail investors against betting big on contrarian stocks citing the example of Global Trust Bank. "Retail investors kept on buying even below 50 paise only to lose everything towards the end as the subsequent scheme of amalgamation announced by Oriental Bank of Commerce extinguished all the shares of Global Trust Bank," he said.  rajesh.mascarenhas@timegroup.com