While the reforms initiated by the government have boosted sentiments, the average daily cash turnover in equity markets for the first seven months of the fiscal year on a year-on-year basis has hit the lowest level in six years.
According to data available on the exchanges, the average daily turnover during April-October (the BSE and the NSE combined) stood at R12,430.37 crore, the lowest since 2006. Experts attribute this trend to a sharp fall in retail participation ? a result of policy paralysis at the Centre, coupled with the global economic uncertainties.
According to exchange data, the average daily cash market turnover was R13,700 crore during April-October FY12, R18,900 crore during April-October FY11 and R24,500 crore during April-October FY10.
Markets experts said excessive volatility in equity markets also hindered retail participation. Twice, when the Indian market neared its respective peaks achieved in early 2008 and late 2010, equity returns fell 50% and 25%, respectively, and shook investor confidence, they said.
?If you look at the last 3-4 years, there were so many scams that hit Indian politics. In addition, there were issues in the global economic environment that discouraged retail investors from investing in equity markets,? said K Sandeep Nayak, ED & CEO, Centrum Broking.
Nayak said that point-to-point (from the second half of CY08 until the first half of CY12), investors received significantly lower returns on their investments against the bull run of 2003-2007. ?A lot of retail investors burned their hands or fell short of their dreams of achieving high returns after the up-move seen in 2008 and 2010,? Nayak said.
A further look at the data indicated that the average daily turnover (month-on-month), especially in September and October, touched a six-month high after the government unveiled a series of reforms.
Average daily turnover stood at R13,849 crore in October 2012 and R14,284 crore in September, compared with nearly R12,000 crore in April-May this year.
However, experts attributed this recovery in cash market turnover to a record inflow of foreign institutional money.
?Mutual funds have been seeing redemption pressure as significantly low returns may have taken a toll on their finances,? said Nayak.
Experts said retail investments will revive only if investors expect the current rally in Indian equity to hold.
?As of now, retail investors will choose to remain on the sidelines to see how the economic situation unfolds. The markets will not see a recovery in turnover unless participation of retail participation improves. Investors would come back if the interest rates show a declining trend and the government continues with economic reforms,? said Holland.
