NEW DELHI: The recent selloff in the smallcap space was so unsettling that it perturbed even seasoned investors like Dolly Khanna, who offloaded a large chunk of her smallcap holdings.
Most of the smallcap stocks slipped between 30 and 50 per cent during this selloff, making top investors to re-think their portfolio strategies.
Dolly Khanna, a leading investor on Dalal Street known for her knack for identifying big stories at an early stage, trimmed exposure to over a dozen smallcaps during the quarter gone by.
Her portfolio is managed by her better half Rajiv Khanna, who has been investing in the domestic stock market since 1996.
Among her portfolio stocks, Rain Industries, LT Foods, Manappuram Finance, Butterfly Gandhimathi Appliances, Srikalahasthi Pipes, Asian Granito India and Thirumalai Chemicals saw sizeable selloff by the ace investor during the first quarter.
Besides, she also trimmed her holdings in Nocil, IFB Agro Industries, Ruchira Papers, PPAP Automotive and Associated Alcohols & Breweries in the June quarter, shareholding data available with Ace Equity suggests.
The ace investor sold 2.95 lakh shares in Rain Industries to cut her stake to 2.57 per cent by the end of June quarter from 2.66 per cent at the end of March quarter.
Her stake is down from 1.42 per cent to 1 per cent QoQ in Butterfly Gandhimathi Appliances, 1.49 per cent to 1.21 per cent in Thirumalai Chemicals, 1.24 per cent to 1.07 per cent in Asian Granito, 1.09 per cent to 1.02 per cent in LT Foods and 1.95 per cent to 1.93 per cent in Nocil.
She also sold shares in Manappuram Finance, Srikalahasthi Pipes , Ruchira papers, RSWM, IFB Agro, PPAP Automotive and Associated Alcohols & Breweries, leading to a drop in her holdings on these counters by a few basis points.
Khanna had 1 per cent stake in GNFC at the end of March quarter, but her name is missing in June quarter shareholding data. Same was the case with Dwarikesh Sugar Industries, where she held 1.16 per cent at the end of March, and Nitin Spinners, where she had 1.06 per cent stake at the end of March.
Companies only list out investors with over 1 per cent stake in quarterly shareholding data. Which means Khanna may have either trimmed her holdings or completely exited these stocks during the quarter gone by.
It also means there would be many companies where she would have raised or trimmed her exposure but it will not be known.
For instance, the ace investor had 1.48 per cent stake in Selan Exploration Technology as of June end. The last time she held over 1 per cent stake in this stock was at the end of March quarter of 2015, which means the investor may have been holding this stock in smaller quantities for all these years.
Khanna does not like to put all the eggs in one basket, as her portfolio shows just over 1 per cent stake across a number of companies.
Also, data shows many of Khanna's holdings have had a decent runup in recent times, meaning she would have booked profit on some of these counters when the market turned downward.
Muthoot Capital is one company where Khanna held 1.07 per cent as of June 30 with no previous history. In Nilkamal, she raised stake to 1.64 per cent from 1.53 per cent.
HNIs in panic mode
Reports say high networth investors (HNIs) across the spectrum were caught off guard by the selloff in smallcaps and midcaps, some of whom sold off and are waiting in the wings for things to turn around.
“Our sense is that leverage has come down significantly. There are HNIs who could be sitting on anyway between 20 to 40 per cent cash. Some of the investors we speak to probably had not been sitting on this kind of cash for many years,” Vinay Khattar of Edelweiss Financial Services told ETNow last week.
Rishi Kohli, CIO & MD at ProAlpha Systematic Capital told ETMarkets.com that HNIs, who invest in stocks directly, are fearful that midcaps and smallcaps could come down further and may not recover anytime soon.
He said the mood of HNIs is unenthusiastic. “They are now turning to AIFs, which are long-short strategies, as these have been sold as replacements for debt funds. A lot of money has moved from liquid funds and bank fixed deposits and to long-short AIFs,” Kohli said.
The recent selloff in smallcaps is believed to be triggered by many factors, including Sebi's reclassification of mutual fund schemes, additional surveillance measures adopted by stock exchanges and the premium valuation many of these stocks commanded over their largecap counterparts.