Retail investors cast a wary eye on markets

K.S.Badri Narayanan K Raghavendra Rao Mumbai | Updated on March 12, 2018

Mr. Ravi Narain, MD andCEO of National StockExchange of India

Pension funds will help capital market tap households savings

The managing director of the country's premier stock exchange feels that retail investors would continue to remain dormant spectators in the stock market unless there is a clear signal that the market will start looking up.

“We are seeing it from the sidelines and I think there is a lot of uncertainty which is getting to people,” Mr Ravi Narain, MD &CEO, NSE told Business Line.

Retail Penetration

“They are no longer sure whether this is a good time to enter or not as inflation and the resurging Euro-zone crisis is getting to everyone. And with fixed deposit yields going up, one gets a very significant substitute for equities, which means when an investor is not sure of market equity entry, he deploys it in debt.”

With 3,000 plus-locations covered, NSE feels that the distribution network is reasonably well spread. “Some of the top 10 retail (brokerages) have distribution networks that match up to that of a small bank, “said Ms Chitra Ramakrishna, Joint MD NSE.

“The issue is really market sentiment at this point, having the right kind of products such as the NIFTY ETF in which people can put their money in.”

Retail participation in the equity market would jump manifold only if retirement pension monies come into the stock market, said Mr Narain.

“The only way to get the 6-7-8 per cent household savings up to 40-50 per cent is by getting into retiral pension savings. No country in the world has increased retail penetration going from household by household. So six per cent can go to eight per cent or nine per cent but it can't go to 50 per cent, it can't. It can only happen through this systematic equivalent of the 401K in the US, said Mr Narain.” (Retirement savings accounts in the US are popularly called 401 K after the sub section of the internal revenue code that defines the account).

The employees provident fund organization (EPFO) was unnecessarily worried about investing the stock market, he said.

“At EPFO, the thinking is there is too much volatility in the market. But that is daily or weekly volatility. What difference does it make for 20-year money? On any 20 years horizon, this asset class is the only one that will produce a return to beat inflation by a significant margin, there is no other, and every study has shown this, said Mr Narain.

At the same time, he also suggested safeguards while investing in equity. “Though equity cannot guarantee returns, nobody should actually suggest that the entire EPFO corpus can go into equity market. If you start with five per cent and that also to begin with as index money rather than stock picking, then these are natural safeguards that somebody will not dump it into some shady stock and end up losing.”

Taxes and duties are taking the retail investor away from the stock market, said Ms. Ramakrishna.

“A significant cost of transacting is the securities transaction tax (STT) and the duties. Three years ago when the STT change happened it has become three times more expensive now, so a lot of the volume has actually shrunk,” she said.

“Taxes and duties always have a direct relationship with the volume in the market. If it comes to a point where they (investors) are not breaking even then that business goes away. We can't flog the retail horse alone to build market volumes; we have to build the institutional, arbitrageur and then the retail volume. Surely we don't want the retail to drive the rally in the market,” she added.

Published on July 20, 2011

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