1. Small investors drive big gains in markets

Small investors drive big gains in markets

Cash turnover up 51%; most stay invested, not just trading

By: | Mumbai | Updated: November 11, 2014 1:41 AM
Small investors are known to arrive late to the party.

Small investors are known to arrive late to the party.

Small investors are known to arrive late to the party. Whether they’re early enough for this bull rally, only time will tell. Meanwhile, they’re certainly making their presence felt in the market — retail turnover as a share of the total cash turnover on the two
bourses, NSE and BSE, surged to a 12-quarter high of 51.04% in the September quarter.

What’s more, many more retail investors want to invest rather than just trade. Data compiled by FE show that in the three months to September 2014, retail investors’ holdings in India’s top traded companies rose for the first time in three quarters with their cumulative ownership of the 494 of the BSE 500 companies to 6.37%.

To be sure, foreign institutional investors have been far more bullish on Indian stocks — their ownership of the universe went up by a more significant 50 basis points to 14.5%. But the reversal in the ownership trends for retail investors — their share had dropped between December 2013 and June 2014 by 30 bps to 6.29% — suggests they’re more confident now.

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Those that want to play it safer are opting for the mutual fund route. Retail folios have seen a 4.6% increase in H1FY15, marking the highest rise since March 2009, when industry body Amfi started reporting half-yearly folio data.

Sunil Subramaniam, deputy CEO, Sundaram Mutual Fund, points out that in the September quarter, retail investors pumped in Rs 23,821 crore into equity mutual fund schemes, more than twice seen in the June quarter. “While we have seen keen interest in our micro-fund launches, about 5% of our expanded customer base comprises new clients,” Subramaniam added.

October saw mutual funds buying close to Rs 6,000 crore worth of equities, continuing their buying for the sixth straight month. B Gopakumar, head, broking, Kotak Securities, said client acquisitions are up threefold in the last five months. “Nearly 50% to 60% of these clients are maiden investors although some may have bought mutual funds earlier,” Gopakumar said.

The higher retail participation has prompted many to believe that household savings in shares and debentures could go up meaningfully. JPMorgan wrote in a recent report that earlier phases of broad-based momentum in equities have resulted in as much as 12-14% of household financial savings flowing into share and debentures. Based on the current year’s GDP and household savings break-up — 32% financials, 68% physical — the peak allocation rate would amount to flows of $17 billion into shares and debentures, the brokerage observed.

Given how assets such as gold have been under-performing, it’s possible, say experts, that flows into stocks and bonds could increase significantly. In 2014 so far, the price of gold has dropped by nearly 11% to around Rs 25,887/10 grams, which is near its one-and-a-half year low. The BSE Sensex, on the other hand, has gained 31.64% with mid-caps, typically preferred by retail investors, clocking gains of over 43%.
The average retail cash turnover in September quarter stood at Rs 10,189 crore, with the cash turnover at Rs 19,970 crore. NSE, which registers the bulk of cash volumes, in an email response said the share of retail turnover to the total cash turnover on the exchange has risen to 49.21% in April-October, 2014, up from 42.51% in April-October, 2013. Meanwhile, new client registrations on the exchange are on the rise. About 6.51 lakh new clients were registered on the exchange in September quarter, 40% higher year-on-year.

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