Retail investors stay away from Sensex party

While foreign investors take the Indian stock markets to new highs day after day, retail investors appear to be steering clear of the excitement.

The BSE Sensex rose from the mid-26,000 levels in October last to over 29,000 this week, a gain of nearly 10 per cent in over three months. Retail investors, however, have been using the opportunity to cash out of their stock holdings, being net sellers of equity through this period, according to data published by the exchange.

B Gopakumar, Head of Broking, Kotak Securities, said the brokerage firm has seen barely any rise in retail participation in the market. “Maybe the smart money has started to come into the equity market. But it is too early to expect retail investors to enter the stock markets as a whole, since their wealth, and with it their risk appetites, haven’t increased.”

Gopakumar believes the Budget will be key in such a scenario. “Only once the Budget is out will we know if companies will increase their capital expenditure and expand capacity. If they do, then the recovery process will start to take off, small businesses will do better and salaries will rise. Right now, salaries have gone up only in top tier companies.”

Pradeep Gupta, co-Founder and Vice-Chairman, Anand Rathi Financial Services, said retail investors are wary of the stock markets after burning their fingers when the Sensex fell from 20,000 in early 2008 to below 10,000 in early 2009. “Retail investors lost confidence in the markets in that period; their participation in the market since then has been near static.”

When they do return, Gupta says, it will be through mutual funds, and not direct investments in the market.

This did bear out towards the end of last year. For the December quarter, data from the Association of Mutual Funds of India showed that average assets under management — the corpus managed by the MF industry — reached an all-time high of ₹11 lakh crore. In the quarters ending September and December, investors exited the safer fixed income funds, redirecting some of that money into equity and balanced (a mix of equity and debt) schemes.

But even here, the number of new entrants into the industry has been minimal. Mutual fund folios — the number assigned to MF holdings, a lot like bank account numbers — in equity schemes rose only marginally from 2.99 crore in April-September 2014 to 3.03 crore in April-December of the same year, an increase of just one per cent.

Satish Menon, Executive Director, Geojit BNP Paribas Financial Services, expects higher growth in the MF industry before retail investors return to direct participation in the stock market. “We have clients still stuck with scrips they bought in 2008. Retail interest will take time to return. The mutual fund industry will see this first. For us, we have seen activity pick up in about 30-40 per cent of our inactive accounts, but there haven’t been many new account openings yet.”

Gopakumar of Kotak believes retail investors will return only once the IPO market gathers momentum. “New retail investors usually step into direct investing in equity through the primary market. More government disinvestments and offers for sale by companies will encourage lay investors to return to the market but unlike the last time, the pricing must not be too ambitious.”

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