The 25%-plus rally in equities in 2012 has not helped bring back retail investors to the market. If anything, retail cash delivery volumes — a measure of retail participation — dipped to low levels in several months of the year as incessant volatility spooked investors.
Retail delivery volumes stood at Rs 2,236 crore and R1,377 crore in January and February, but dipped significantly since March, with volumes slipping to as low as R317 crore in May. In September, the month when the market rallied on back of a series of reform measures initiated by the government, retail delivery volumes stood at mere R491 crore. Delivery volumes stood at R1,620 crore and R1,472 crore in FY12 and FY11 but average at R637 crore for the first nine months of FY13.
The subdued retail participation was also evident from the redemption pressure faced by equity schemes. Equity schemes witnessed outflows of R14,148 crore in 2012 compared with inflows of R6,848 crore seen in 2011. More worrisome, the year saw a decline of about 45 lakh equity folios.
Industry observers believe retail investors have become risk-averse and are looking at products that will give decent returns without compromising on the safety of the principal invested. “With most debt categories fetching returns of above 9% and fixed deposit schemes giving returns of more than 8%, why would investors want to take the risk and invest in equities?” said B Gopkumar, head of retail broking at Kotak Securities.
Many investors who entered the market in 2007 are yet to break even, said experts. “Those who had invested in realty, infra and PSU banks have not even recovered 50% of their money. While many stocks have rallied 100% since their 2011 lows, they are still 40-60% below their 2007 highs,” said AK Prabhakar, senior VP, equity research, Anand Rathi. Inflation had eroded the savings of retail investors even as real wage increases remained flat in most sectors in the past three years, he added.
To be sure, retail participation has been subdued for nearly three years now. Brokers have tried to woo back retail investors by introducing products such as equity SIPs, but in vain. “We have tried to handhold retail investors, improved our research coverage and bettered our techology offerings,” said Gopkumar.
The good news is that delivery volumes picked up somewhat in the last quarter of calendar year 2012 and crossed the R1,000 crore mark in October and December. Experts, however, say the improvement is marginal and doesn’t indicate a return of retail investors to equities. “After October, we have seen a healthier participation from HNIs (high net worth individuals) but retail investors remain sceptical,” said Vineet Arora, the executive vice-president, ICICI Direct.
The rally after September has been largely driven by Nifty and Sensex stocks and midcaps have seen a proportionate rise, Arora added. “Retail investors will enter market only if they see a midcap rally,” he said.