NEW DELHI: Indian high networth individuals (HNIs) seem to have developed high conviction on a set of 22 smallcap companies, where they have remained loyal through the recent selloff that sliced away up to 90 per cent value.
Curiously, a few of these companies are bankruptcy candidates and are at various stages of adjudication at the insolvency courts.
Even as the benchmark Sensex scaled a new lifetime peak going past the 38,000 mark on Thursday, the BSE smallcap index is 16 per cent from its all-time high point hit last January.
But HNIs have been religiously investing in these 22 smallcaps for the past nine consecutive quarters without a break ever since March 2016.
This rich investor class is usually known for higher risk-taking ability than retail investors. They refused to budge in the recent selloff, even when many institutional investors fled these counters.
One of their favourites is MBL Infrastructure. HNI stake (individuals holding shares worth over Rs 2 lakh) in this company has gone up from just 3.03 per cent in March 2016 to 23.46 per cent in June 2018. The HNI stake rose even as mutual fund holdings in these counters fell below 1 per cent from 21.4 per cent. The stock is down 14 per cent in last one year.
In April this year, the company emerged Indias first road builder to achieve a successful insolvency resolution on about Rs 1,700 crore of outstanding loans, with a SBI-led consortium approving the revival plan.
KSK Energy is another stock being fancied by HNIs. The counter has been seeing consistent buying among HNIs, whose stake have gone up from less than 1 per cent in March, 2016, to 18.61 per cent in June 2018. At the same time, MF holding on the counter has come down to 6.4 per cent as the end of June quarter from 11.6 per cent at the end of March 2016.
HNIs have also raised their holdings in Speciality Restaurants to 19.23 per cent at the end of June quarter from 18.5 per cent at the end of March quarter and 16.5 per cent at the end of year-ago quarter.
Alok Industries, which has been going through insolvency proceedings, too is seeing HNI buying. These rich investors now hold a quarter of this debt-ridden firm. A consortium of Reliance Industries and JM Financial ARC is set to take over the bankrupt firm at less than one-third of the total loan value.
Media reports suggested that a private lender has raised concerns over the big haircut it has to take. The Ahmedabad bench of the National Company Law Tribunal (NCLT) will hear all the cases related to Alok Industries on September 6 & 7.
These stocks could be conviction ideas or just another high-risk plays. Market veterans caution investors not to take positions based on these data, as some HNIs may not really be betting on a long-term story but playing a different game.
“In the smallcap universe, you need to go for constant recalibration. It cannot be approached the way you approach an index or largecaps. This will be the way forward and the approach should be very stock-specific,” value investor Shyam Sekhar of iThought told ETNow.
Smallcaps do see volatility and one should know how to handle it. That is going to be the biggest challenge over the next one or two months, says he.
Among others, Gammon Infrastructure Projects, Supreme Infrastructure India, Parabolic Drugs, Monnet Ispat & Energy, Ramky Infrastructure and Man Industries have seen strong HNI interest over the past two years.
Monnet Ispat is another firm facing bankruptcy. The Mumbai bench of NCLT this July approved a Aion-JSW Steel resolution plan with modifications, a year after the company was admitted to the bankruptcy court for defaulting on Rs 10,000 crore debt. The consortium will hold 75 per cent of equity in the company.
In Ramky Infra's case, the Hyderabad High Court last month suspended a NCLT order to initiate insolvency proceedings against Ramky Infrastructure for non-payment of around Rs 1.27 crore to an equipment supplier that claimed itself to be an operational creditor.
The list also includes Innovassynth Investments, RattanIndia Power, Associated Alcohols & Breweries, Astrazeneca Pharma, HS India, Gujarat Metallic Coal & Coke, BAG Films & Media and Rolta India.