It?s not just the foreign institutional investors (FII) who are busy making hay while the sun shines (read while the market rises), high net worth individuals (HNI) too have upped their exposure to trading. According to data compiled by the Bombay Stock Exchange, daily trading of ?clients? or high net worth individuals (retail investors) has gone up about four folds in a year.
From the Rs 1,700-levels of purchases and sales a year ago, average purchases and sales by HNIs for the 12 days of October have been around Rs 5,500-levels. In fact, October 12 saw these individuals purchase around Rs 6,273.22 crore of equities, second only to the year-end buying spree witnessed on March 31, 2006. This is the time when HNI investors bought about Rs 6,742 crore of shares and also sold equities worth Rs 6,866.57 crore.
The trend indicates the rising level of trading and speculative activities on the domestic bourses. Already average daily deliverables have slipped to the 25 to 30% range, from 40% levels earlier in the year, indicating the high level of speculation in the market.
Already finance minister P Chidambaram has expressed his concern over the rising level of speculation and directed retail investors to use the mutual fund route to tap the stock market. Looks like the investors are turning a deaf year to this and are busy taking bets in the markets. Brokers admit that the number of people and the quantum of funds dedicated to trading activities have shot up. Over-trading is also a source for market evils like rumour mongering, insider trading and front running.
Naturally, the mutual fund industry is bearing the brunt of this. Average holding in mutual funds by individual investors has gone down to 270 days from 365 days earlier. The global norm for holding period in funds ranges from two to three years. This is one of the reasons for funds to start imposing exit loads.
Going ahead, the repercussions for the Indian investor look scary as studies by Brad Barber and Terrance Odean in the US market suggest that 82% of the day traders lose money.