IPOs, stock gains bring retail investors back to the bourses

Rajalakshmi Nirmal BL Research Bureau | Updated on January 16, 2018 Published on October 09, 2016


Big jump in demat numbers as NSDL, CDSL add 20 lakh accounts in FY16; MFs too see a surge

Retail investors who were waiting on the sidelines are trooping back to the stock market, going by various equities-related data.

The two depositories, NSDL and CDSL, together added over 20 lakh accounts in 2015-16. This is the highest incremental growth in five years, taking the total demat accounts of the two depositories to 253.6 lakh in March 2016.

Since April, another 11.4 lakh accounts have been added, which is much higher than the nine lakh added in the corresponding period last year.

The primary market has also received a boost, thanks to the retail participation. Most of the recent initial public offers saw the retail portion subscribed several times.

The retail investor portion of the ICICI Prudential offer, for instance, was subscribed 12.2 times. Small investors also made a beeline for the issues of RBL Bank, Advanced Enzyme Technologies, Mahanagar Gas, Ujjivan Financial Services, Thyrocare Technologies and Equitas.

Retail holdings in stocks in the secondary market have also gone up.

The share of retail holding in stocks forming the Nifty 500 was 8.09 per cent in the June 2016 quarter, up from 7.6 per cent in March 2015, and 7.3 per cent in March 2014. Data from AMFI also indicate a jump in mutual fund investor accounts in the last one year.

The numbers put out by the RBI, too, corroborate the trend that Indian households are getting more comfortable investing in stocks. The net financial savings of households in shares and debentures in 2015-16 was 0.7 per cent of gross national disposable income, up from 0.4 per cent in 2014-15 and 2013-14.

Quality IPOs

The rush to open demat accounts can be explained by a revival in the IPO market, say experts. In 2015-16, a total of 74 companies made their debut in the capital market, the highest in five years. Further, since April, more than 25 new issues have hit the market.

Subhrajit Roy, Executive Director and Head (equity capital market origination) at Kotak Investment Banking, says that listing gains could also have attracted investors.

RBL Bank and Advance Enzyme Technologies surged over 20 per cent on debut. Thyrocare Technologies listed at 28.5 per cent above its issue price.

Pranav Haldea, Managing Director of Prime Database group, which tracks primary market offers, says: “Compared with 2007-08, this time, the number of IPOs were fewer, but most of them have been fundamentally strong, thanks to SEBI’s new stringent regulations. Also, this time, the issues were backed by PE or VC funds.”

What has also attracted retail investors to IPOs is the ASBA mandate, says Mariam Mathew, Associate VP and Head, Chola Securities.

“In January, SEBI made ASBA (applications supported by blocked amount) mandatory for retail investors.

“So, the applicant’s money is debited from his account only after he gets the allotment of shares. And as the time allowed for listing has been reduced to six days from 12, investors are happy.”

Secondary market rally

The rally in stock prices in the secondary market is another reason for heightened retail interest. Nifty, the equity bellwether index, has rallied close to 25 per cent from its lows in February with select stocks in the mid- and small-cap segments yielding much higher returns.

Investors have also taken the mutual fund route to investing in stocks and this is captured by additions to mutual fund folios.

The number of investor accounts (MF folios), which dropped to 3.95 crore in September 2014, has since improved.

It hit 4.77 crore in March 2016 and 4.89 crore in June 2016. Almost 95 per cent of the mutual fund accounts are held by retail investors.

Published on October 09, 2016
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