Retail investors who have largely stayed away from the equity market for the last few years may finally make a comeback. With real interest rates rising due to easing inflationary pressures, experts believe retail investors are likely to turn net buyers from net sellers in the coming months.
Morgan Stanley, in a report released on Monday, said the stage is set for a return of retail investors — real rates are positive and likely rising, real returns on equities have turned up and retail portfolios are underweight equities.
India’s wholesale price inflation, or the headline inflation, eased to 5.20% in April from 5.70% in March. In recent months, retail turnover in the cash market has seen a rise. Average daily retail turnover in April stood at R8,832 crore, up 17.13% over the previous month. Retail turnover as a percentage of total cash turnover has also seen a spike, with the turnover in April at 49%, the highest in CY14.
Experts believe the recent rally seen in markets will bring back retail money. “The mix of equities in financial savings is driven by trailing real equity returns. Trailing returns are rising and this is good for equity flows. The other factor is the ratio of equities to fixed income — this ratio shows very high under allocation to equities. Already, India has underlying structural factors to drive equity savings,” Morgan Stanley analysts added. The Sensex has given returns of more than 16% YTD.
The Morgan Stanley report adds Indian savings are likely to move from assets like gold and property to equities. “Choice between equities and gold is driven also by the relative returns of the two asset classes. Here again, equities are gaining at the expense of gold and, therefore, the relative equity flows to gold could also reverse in the coming months,” it states.
The MCX gold spot rates have fallen more than 4% YTD. Analysts added that demand for homes could also come under relative pressure as households make a shift in favour of financial assets.