Participation of retail investors in Indian equity markets witnessed a rise in calendar year 2015 despite weak market conditions. Total retail turnover in the cash markets for CY15 was R26.92 lakh crore – a 15% increase compared with 2014, data compiled by Motilal Oswal Financial Services showed. Further, 2015 was the best calendar for retail participation in the last four years.
“The enhanced retail participation in equity markets is due to lack of investment avenues available for a common man. Returns on real estate have plummeted while interest rates are coming down. Even tax benefits on debt mutual funds have gone down. Hence, allocation of savings by retail investors towards equity markets was bound to go up,” said Rakesh Arora, managing director & head of research, Macquarie Capital Securities.
Participation of retail investors in the equity markets witnessed a significant uptick in the last two years on expectations that the National Democratic Alliance (NDA) government would initiate economic reforms that would put India on a high growth trajectory.
However, because of persisting volatility in the stock markets last year, majority of the retail investors participated in the equity markets through the mutual fund route, instead of direct participation. This is evident from the fact that the retail to total market turnover in the cash segment fell to 45.05% in CY15 from 50.61% in CY14.
On the other hand, inflows into equity mutual funds increased nearly two fold to R96,389 crore, compared with R53,194 crore in 2014, AMFI data showed.
Market participants said retail turnover has potential to surge further.“This is just the tip of an iceberg as financial savings by retail investors into equities and mutual funds is currently 2% compared to 8% during the peak of bull market,” Arora said.
Active participation from retail investors acted as a counterbalance to selling by foreign portfolio investors (FPIs) during last calendar, market participants said. FPIs trimmed their exposure to emerging markets (EM) during CY15 over concerns about the Chinese economy. Foreign funds net purchased cash equities worth $3.27 billion in 2015, Bloomberg data showed. This was the worst yearly FPI inflows that the Indian markets witnessed since 2011.