Stock markets: Retail investors on a high

ENS Economic Bureau Posted online: Monday, Apr 28, 2014 at 0000 hrs
New Delhi : LAST week little known Wonderla Holidays that came with its initial public offering (IPO) to raise up to Rs 180 crore witnessed a huge success with the overall subscription of 38 times and the retail subscription hitting over 7 times.

The last time an IPO received such interest from investors was the Punjab & Sind Bank issue in December 2010 that got a subscription of 50 times its issue size.

The response to the issue not only gives some indication of the return of general confidence but also shows retail investors' willingness to participate in the market and not to get left behind.

The behaviour of retail investors in the past shows that they look for some certainty before they enter the market at the turn of cycle. While the foreign institutional investors are the first to do so and thereby lead the trend, retail investors are generally the last ones to come into the market. The markets have risen by 11 per cent over the last two months following net foreign institutional investors (FIIs) bringing in over Rs 29,000 crore since the beginning of calendar 2014.

The surge in markets over the last two months following expectations of a strong government coming to power in the ongoing general elections has lifted retail investor mood and their activity seems to have picked up.

Data available with the Securities and Exchange Board of India (Sebi) shows that the share of others (excluding FIIs, mutual funds, banks and proprietors) in the turnover in cash segment at National Stock Exchange has gone up over the last five months. While the share ranged between 43 per cent and 49 per cent from April-September 2013, it ranged between 52 per cent and 54 per cent in the five-month period from October 2013 to February 2014.

THEY ARE COMING IN

While the retail investors have been sitting on the sidelines for a longtime, brokerage houses say that there is a clear trend of retail investors now coming back to the market and not just for long-term investments but there has also been a steady rise in the number of retail investors entering the market with a short-term approach.

CJ George, chairman Geojit BNP Paribas Financial Services said that the brokerage firm has witnessed more than 50 per cent year-on-year increase in the number of investors trading on a daily basis. “There was no confidence in the markets over the last four years but now it is coming back. Investors are looking forward to May 16 when they expect the BJP-led coalition to get a strong mandate and form a stable government,” said George.

But retail investor behaviour seems to be more rational and guarded as they are not entering with a motive to speculate. Dinesh Thakkar, chairman and managing director of Angel Broking said that retail investors are mostly churning their portfolio and not coming in with fresh investments.

“Retail investors are coming in but certainly not in the same proportion as the FIIs. While they are not bringing in fresh investments, all that they are doing is churning their portfolio by booking profits in stocks that have risen and investing in companies that are available at lower valuations,” said Thakkar.

Even at the ground level, employees working with broking firms say that there is a rise in their business. A manager with a leading brokerage firm in New Delhi, who handles close to 500 retail clients at the brokerage firm said that the number of his customers who have begun short-term trading has jumped over the last three months. “From around 30 of my customers who were doing intra-day trading till three months back, the number has gone up to close to 125 now,” said the relationship manager with the brokerage firm who did not wish to be named.

DECIDING STRATEGY

There is a feeling in the market that Indian equities will be one of the better performers among the emerging economies as there are concerns with other economies. While China is witnessing a slowdown, there are geopolitical concerns with respect to Russia.

“Among the emerging economies, India is a more favourable destination for FIIs because of its demographic structure and markets,” said SN Lahiri, head of equities at L&T Mutual Fund. While FIIs continue to invest in India, retail investors should take the cue from them.

Generally when the markets are hitting new highs, investors get afraid of investing in the market at higher levels and are often seen waiting for the markets to correct before they can get in. While that may not be the best approach, experts say that retail investors at this time should not limit themselves to profit booking and shuffling their portfolio but become more active participant so as to benefit from any change that may come in the business environment.

There are some who feel that a new strong government at the Centre may push the investment cycle and thereby lead to an improvement in the overall business environment.

“Retail comes in late and comes only when they see stable growth coming into the market. I think there should be more active participation so that the benefits are more when the actual business turns,” said Thakkar.

While investors must focus on high quality stocks that have strong fundamentals, low levels of leverage, strong order books and a good promoter and management, if direct equities is something that one is not be very comfortable with, mutual funds should be the way to go.