As the BSE Sensex touched a new lifetime high today, some of the market intermediaries are introspecting as to why retail investors have missed out on the current market rally.

They also question the euphoria surrounding the Sensex touching a new lifetime high since the market appears to be driven by select sectors and many of the stocks that were bought at a high price during the earlier rally are still languishing. More importantly, it was a liquidity driven rally riding on the FII inflows and if the US Fed reverses the bond buying programme, there could be large-scale selling by the FIIs trapping investors unawares.

Retail investors left out

Speaking to Business Line, K. Annamalai, Managing Director, Annamalai Capital Services(P) Ltd, Coimbatore, and a sub-broker of Axis Securities, said the market rally was skewed in favour of select sectors such as pharma, IT and consumer durables. But it had skipped core sectors such as capital goods, steel and power, and infrastructure players hit badly in the past few years see no sign of early revival. This has left a large number of investors nursing their wounds still and they have not benefitted in any way from the market recovery.

Giving an insight into retail investors’ behaviour, he said nearly one-third of his members’ accounts has remained dormant while an equal number witnessed trading twice or thrice in a full year.

Annamalai said retail participation in the market was dwindling. Stocks that are commonly owned by them have not reached even their purchase price and saddled with losses retail investors do not have the heart to put fresh money into the markets, he said.

He pointed out even a blue-chip stock like SBI has seen a steep erosion in its value from its lifetime high and is now trading at a 50 per cent discount from its peak price. The other PSU bank shares may have rallied in the last couple of days but their value erosion too has been significant.

Even those investors who opted for professional advice have burnt their fingers.

Generally, 40-45 per cent of retail investors act on their own depending on market rumours and some tips while picking stocks and those who had invested in energy stocks like Suzlon have burnt their fingers badly.

Changing market dynamics

He said investors are also unable to come to grips with the changing dynamics of the market. Stocks that were earlier considered as sure fire winners have been beaten down and the market rally now is largely confined to a few large cap counters. There could be PSU stocks of companies that have been categorised as Maharatnas/Navaratnas but that did not shield them from significant value erosion as witnessed by the oil sector and power and commodity sector stocks such as ONGC, REC, Oil India, IOC, BHEL, Coal India and NMDC.

The confused investors are not able to take a long term bet as stocks considered as market favourites suddenly lose favour and new hot bets emerge. It is the buy-and-hold strategy that has become a casualty in the process.

How long will the rally last

He said his company has seen a 50 per cent drop in daily business volume and retail investor participation is down to a trickle. He wondered how long the rally will last when there was no strong economic performance to support. He said it was “tough to find a new client”.

Is the market riding on the hopes of BJP coming back to power at the Centre? Annamalai, a former President of Coimbatore Stock Exchange (CSX), did not subscribe to this view and said the Lok Sabha poll was a long way off and several states would go to the polls before that.

With the overall business down, he said the brokerages are also going for downsizing by closing branches or cutting down staff strength. Some brokers do proprietary trading to keep themselves afloat.

(This article was published on November 1, 2013)
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