Retail interest in stock market wanes as players eye safer options

Retail participation in the stock market has dropped significantly in June. According to BSE data, “clients” — including small investors, high net worth individuals and a section of day-traders — bought and sold Rs 77,426 crore worth of shares in June as against the average monthly figure of Rs 1.33-lakh crore in 2010 and Rs 1.4-lakh crore in 2009.

The combined average daily turnover in the cash segment on the BSE and NSE slipped to Rs 12,800 crore, a fall of 33 per cent over the average trading volume in 2010 (Rs 19,225 crore) and 38 per cent from 2009 (Rs 20,775 crore). A rise in deliverable volume, in percentage term, also indicated the low level of participation of day-traders. The deliverable volumes with respect to the total traded quantity on the BSE increased to 40 per cent against the 2009-10 average of 32 per cent. The corresponding figure on the NSE is about 30 per cent (22 per cent).

Mr U. R. Bhat, Managing Director of Dalton Capital Advisors, told Business Line that the market was evidently and increasingly moved by the institutions. “Majority of the retail players, who are not out of the ring, currently have found greater safety in buying option contracts. These are limited risk and high potential gain propositions. The proprietary players, on the other hand, are concentrating on higher risk and gain play in selling options,” he observed.

Mr Saurabh Mukeherjea, head of equities at Ambit Capital, felt that the clear drop in retail volumes could be attributed to the fact that millions of them lost badly in the previous bull-run that ended in January 2008. “They seem convinced that the market, riddled as it is with information asymmetries, does not give a fair deal to the small guy”.

According to him, mutual funds have been hit hard by the crucial change in rules by the market regulator two years ago. “Mutual funds could not incentivise sales agents through frontloaded commissions and as a result lost their position of strength in the market”.

According to Mr Ajay Jaiswal, President (Research) of Microsec, migration of the retail players more to the derivatives, particularly to options contracts, from the cash segment is a recent phenomenon. “This was behind reduction in retail participation in the cash segment,” he added.

“Retail participation is not rising even though the key indices recovered in the last 8 days. The most compelling reason for this is absence of market reforms,” said Mr Kishor Ostwal, Managing Director of CNI Research. “Many companies refuse to meet analysts, who only perhaps can throw light on the prospects of a stock. Small investors, in the absence of any valuation guidelines, are apparently chary of investing in B group shares,” he added.

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