The word ?tail? in ?retail? investors tells us a lot about this class of investors. They catch the bull market by its tail. When the going gets tough, they stay away and wait until the returns come back in abundance. And when they finally make investments, it is usually a bit too late. If historical data is any indication, retail investors hardly seem to learn from their mistakes. Perhaps, every market cycle brings a new set of novice investors with a similar investment mentality. The net result?mutual fund equity inflows suffer whenever the equity market vacillates.
Take the May equity inflow number, for instance, which was positive. While it turned positive after two months of negative flows, the fact that they have invested only Rs 1,256 crore indicates that retail investors are still grappling with market volatility. While one could partially blame the distributors for not pushing the product post entry load ban, it is also true that retail investors often get the timing wrong.
New fund offering (NFO) collection is one simple way to judge the investor sentiments. Past data shows that Indian retail investors have got the timing wrong in the last market cycle (April ?03-April ?09). They invested around Rs 1,22,000 crore of money into equity NFOs. FY06 was the first year when there were record collections of Rs 37,000 crore. It came after solid Sensex returns of 63% in FY04 and 18% returns in FY05?when the collections were lukewarm. The NFO collection figures were only Rs 1,646 crore in FY04 and Rs 15,308 crore in FY05. This implies that retail investors waited for two years before pulling out their cheque. Then, just when markets were about to tank (an year before the Lehman crisis), record collections of Rs 46,612 crore were made in FY08. In FY09, Sensex corrected 38%. When the equity markets rallied from early ?09, almost all the retail investors missed the bus. Only Rs 1,996 crore came in the whole of ?09, just a year before a sharp rally was witnessed in equity market when Sensex rallied 63%. In a sense, investment pattern of retail investors does suggest that when the equity market is turning, be contrarian.
muthukumar.k@expressindia.com