Investors Line Up For High-Yield Scrips

The stockmarkets are witnessing a sea change in investor behaviour including large institutions with more and more investors seeking out relatively low-price scrips with high dividends.

As a result, the post-budget rally has been led by what the markets define as second-line scrips. Analysts believe that this broad-based rally has been caused by the withdrawal of double taxation of dividends in the budget.

The fact that dividends have become-tax free has attracted investors. It is very simple. Capital gains would imply a 20 per cent tax. A similar trend occurred in Australia too, says Morgan Stanley Dean Witter chief economist Pravin Shah.

The logic is simple. Assume that you buy a share for Rs 10. Two months on, if you sell out at Rs 15, you have made a gain of 50 per cent.

However, the company may, meanwhile, declare a dividend of 20 per cent (Rs 2 on a face value of Rs 10). So you have gained Rs 7 (Rs 5 plus Rs 2) and your yield is now 70 per cent.

In a bull market, dividend payouts may not make much difference, because the returns from price increases tend to be high. But at a time when stocks are languishing, this factor can become very important.

Analysts point out that for most of the current year, the bull run remained confined to bluechips, while the rest of the market was moving sideways or even southwards.

As a result, watching out for high-dividend, low-priced stocks became a popular pastime on the bourses.

It was apparent that the action was going to start, given that other opportunities were missing, says Ajay Kejriwal of Jetage Securities. His point is that interest rates in the same period were coming down. Hence, it made no sense to increase exposure in securities.

This change in investor behaviour was first witnessed in the fertilisers sector, with several scrips, including GNFC, Chambal Fertili-sers and Nagarjuna Fertilisers witnessing a substantial step-up in trading activity and a pick-up in prices.

Subsequently, investor demand extended to Pentafour Products, Premier Housing, Ashok Leyland Finance and Ceat Finance, which offered similar yield opportunity.