An unlikely trio that has captivated retail investors

Leading this unlikely trio was NTPC Ltd, which added about 1.7 million new individual investors in the September quarter, thanks to its strong growth and green energy ambitions. That’s the highest number of investors added by any BSE-listed stock during the quarter. In the December 2023 quarter, the state-owned power company had added about 91,000 new retail investors, and the number has grown in each quarter since then.

NTPC was closely followed by telecom tower company GTL Infrastructure Ltd, a penny stock that added about 900,000 individual investors in the September quarter as it outpaced both the Nifty and Sensex this year. The benchmark indices reached their year’s peak in September but have since shed some of their gains.

The September quarter’s other top three investor bets were the state-owned Oil and Natural Gas Corporation Ltd, Rama Steel Tubes, and Bank of Baroda. ONGC’s retail investor count jumped by about 622,000 in the September quarter, Rama Steel’s by about 570,000, and BoB’s by about 286,000.

These five stocks led the way among only 323 stocks that registered a consistent pick-up in growth in their retail investor base over the past four quarters. This means that they added more new investors in each quarter than they did in the previous one. The analysis covered 3,806 BSE-listed stocks whose latest shareholding data was available with Capitaline.

The analysis further revealed that 67% of these firms witnessed a surge in retail investor participation in the September quarter, with only 29% experiencing a decline (the rest did not see a change). This trend underscores a growing trend of individual investors increasingly embracing equities: 28.6% of companies in the sample reported increased retail investor addition between June and September.

Analysts partly attribute this growing retail presence in equities to the Securities and Exchange Board of India’s regulatory changes aimed at discouraging retail trading in future and options. 

“Recent proposals by the market regulator in September for F&O trading have provided a substantial boost to the cash market," said Anand K. Rathi, co-founder of investment platform MIRA Money. “Key measures, such as tripling the minimum lot size, restricting weekly contract expirations, and increasing the upfront margin for sellers, have played a pivotal role." 

The sophisticated investor

The surge in retail activity in the stock markets also reflects a broader trend favouring mutual funds and direct equities because of strong macroeconomic conditions in the September quarter. 

The market’s triumphant march, however, has been abruptly halted since by escalating geopolitical turmoil in West Asia, uncertainty over the US presidential election, and a dismal second-quarter earnings show, resulting in a mass exodus of overseas investors.

Also read | Early bird Q2 results so far: Who’s shining, who’s not

Analysts remain optimistic, although the broader market context for retail investors remains uncertain.  

“The short-term earnings outlook appears bleak, with minimal justification for upside potential at current valuations," said Nirav Karkera, head of research at Fisdom, a trading and investing platform. 

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“However, these conditions also set the stage for retail investors to reinforce their confidence in the long-term, structural growth potential of Indian equities," he added. “With increased liquidity and a strong inclination to invest, retail investors aggressively capitalized on recent sell-offs, viewing them as opportunities for bargain hunting. This dynamic also explains the rising trend of retail ownership in domestic equities across various sectors."

Among companies that attracted retail investor attention in the September quarter, Rama Steel Tubes saw the biggest increase in retail ownership sequentially—13.5 percentage points. GTL Infrastructure’s retail shareholding increased by 4.4 percentage points sequentially. The reasons are explained below.

Individual investors are actively seeking opportunities in both established large-cap companies and emerging small-cap stocks—indicating an increased sophistication. Among companies that saw a consistent addition of retail investors, a third, including Bank of Baroda and GTL Infrastructure, experienced a sequential decline in their stock prices in the second quarter. Let’s take a look at how they are placed now.

NTPC: India’s powerhouse in energy production had a massive installed capacity of 76,443 megawatts as of September. It is also making waves with the launch of an initial public offering of shares in its green energy arm, NTPC Green Energy Ltd, with a substantial ₹10,000 crore primary issuance. 

Investors are taking notice of NTPC’s growth story. The stock’s 21% return so far this year has outpaced the Sensex’s 7% rise. Also, trading at a price-to-earnings (PE) ratio of 16.7 times, NTPC stands out as attractively valued compared to peers such as SJVN Ltd’s 41 times and Power Grid Corporation of India Ltd’s 19 times PE ratios. A lower PE ratio indicates a potential for further share-price appreciation.

Brokerages are optimistic about NTPC’s growth considering its focus on renewable energy and its aggressive capacity expansion. “We believe monetisation of the green renewable subsidiary and a robust capacity addition trajectory will drive strong financial performance for the company in the medium to long term," ICICI Direct Research said in a recent report.

The NTPC stock, however, has trended lower since September owing to disappointing second-quarter results

Also read | Can NTPC Green Energy IPO power NTPC?

GTL Infrastructure: A notable name in India’s telecommunications sector, GTL has been drawing attention because of its impressive gains despite facing financial challenges. Specializing in telecom infrastructure sharing and energy management solutions, GTL Infrastructure has delivered a stellar year-to-date return of over 50%.

While the company has reported losses in recent quarters, its stock has shown resilience and strong appeal, particularly among retail investors.

ONGC: India’s largest oil and gas exploration and production company has delivered a year-to-date return of 22%. With a PE ratio of 7.75 times, ONGC trades at a compelling discount as compared with peers including Oil India Ltd (9.3), Deep Industries Ltd (18.65), and Hindustan Oil Exploration Co. Ltd (12.4), making it an attractive choice for value investors.

According to a recent YES Securities report, ONGC’s second-quarter earnings met expectations, with stable Ebitda performance despite lower crude and gas production and sales volumes. Ebitda, or earnings before interest, tax, depreciation and amortisation, is a measure of operational efficiency.

ONGC’s crude net realization exceeded estimates, and its aftertax profit showed a slight improvement due to lower tax outflows. Although ONGC’s crude production in the September quarter declined both from a year earlier and the preceding three months, natural gas production managed a minor sequential recovery. 

ONGC’s growth potential is further supported by anticipated increases in oil and gas production from its key assets in the Krishna-Godavari or KG Basin.  

The stock, however, is trading in the red with a decline in crude oil price affecting its earnings outlook. ONGC’s stock price is down about 27% from its 52-week high reached in August.

Also read | ONGC looks to cash in on gas pricing tweak, KG basin ramp-up

Bank of Baroda: The state-owned banking giant stands out with a PE ratio of just 6.3 times, significantly lower than its peers State Bank of India (10.06), Punjab National Bank (7.69), and Indian Bank (7.51). Although the stock has delivered low 4% year-to-date returns its attractive valuation and strong fundamentals continue to draw retail investors.

JP Morgan in a recent report highlighted BoB’s robust performance in the second quarter, with a 23% year-on-year growth in aftertax profit, beating market estimates. This growth was driven by higher recoveries from written-off loan accounts, which offset elevated provisioning for bad loans and taxes. Bank of Baroda’s loan book expanded by 12% y-o-y, helping push its net interest income up by 7% in the September quarter.

Rama Steel Tubes: The small-cap manufacturer and supplier of steel tubes and pipes has delivered a year-to-date return of 5.6%, trailing the Sensex’s gain. Also, the stock is trading at a higher multiple compared to its peers: Its PE ratio of 72.32 times is far above that of its peers such as Jindal Saw Ltd (9.52), Welspun Corp Ltd (16.4), and Maharashtra Seamless Ltd (9.76). This suggests investors might be betting on the company’s long-term potential despite its current premium valuation. 

Also, a significant reduction in foreign portfolio investor stockholding in Rama Steel—from 7.2% in the June quarter to 4.4% at the end of September—has added pressure on the stock.