Retail delivery volumes are near the year?s low as the uncertain global macro-economic situation and volatile markets back home keep jittery retail investors away. In fact, delivery volumes this fiscal are nearly half of that in FY11.
?Retail investors are typically comfortable investing when the markets are stable. The current uncertainty has dented their confidence, which is why retail delivery volumes have seen a decline in the past few months,? said Gagan Randev, CEO, Religare Securities. Added B Gopkumar, head- broking, Kotak Securities: ?Given the kind of volatility that has been witnessed this year, it is not surprising that retail investors are staying away.?
Many retail investors burnt their fingers when the Indian equities tanked after the collapse of investment bank Lehman Brothers towards the end of calendar year 2008. Since then, brokerages have desperately attempted to woo back retail investors by offering freebies and introducing investor-friendly schemes such as equity SIPs.
Yet, retail participation has remained abysmally low. The contribution of the cash segment to the total average daily turnover on the exchanges touched a historic low of 10.4% for the quarter ended March 2011, according to data compiled by ICICIdirect.com. That figure has only marginally improved to 10.6% in the quarter ended June 2011. In the year to date the benchmark BSE Sensex has shed about 18%.
Participation in options trades, on the other hand, has risen significantly. ?The absence of any specific trend in the equity in the last year and a half has compelled investors to resort to options trading,? said Kajal Gandhi, AVP ? research, ICICI Direct.
Options turnover as a percentage of the overall market volume has risen to about 65% this year from sub-50% levels in 2010.
Even high net worth individuals (HNIs) are reluctant to punt at this point in time, say market observers. ?Even the HNIs are waiting for the global markets to stabilise,? pointed out Randev. ?When an investor can get returns of 9-11% on relatively risk-free debt products, there is a less compelling need to invest in equities,? added Gopkumar.
Retail investors are important for brokerages as they contribute the most to delivery volumes. Broking rates for delivery are about 5-10 times higher than intra-day trades.
If the secondary market is going through a turbulent phase, the primary market has retreated into a shell. ?Many retail investors enter the markets through IPOs. But we haven?t seen enough quality issuances this year,? observed Gandhi. Most of the IPOs that have hit the market in the past few months have been small ticket issuances in the range of R100-200 crore. ?Pricing an issue when the markets are volatile is difficult,? said Prashant Shetty, managing director, IDFC SSKI.
Indian companies raised R19,862 crore in the first five months of fiscal 2012 by way of IPOs, FPOs and QIPs compared with R120,729 crore raised in the same period last year, according to data compiled by Prime Database.