Retail investors continue to shy away from equities

Retail participation in Indian equities remains abysmally low as choppy markets and an uncertain global macro-economic environment continues to hold sway on investor sentiments.

While retail delivery volumes for the month of October have inched up marginally from the low hit in August this fiscal, they remain at less than half the average value posted for the fiscal years FY10 and FY11. The only time retail delivery volumes for a fiscal were lower than this was in FY09, when the Indian equities had tanked on account of the global financial crisis.

?Volatility is the main reason retail investors have been staying away. If stocks fluctuate 20-30% in the span of a few days, investor confidence is bound to take a hit,? said Prasanth Prabhakaran, president ? retail broking, IIFL. Added Kajal Gandhi, AVP ? research, ICICIdirect: ?Retail investors are comfortable investing when they see a consistent uptrend in the market. Right now, there is no directional trend.?

The BSE Sensex is down more than 20% in the year to date, mainly on the back of selling from overseas investors.

Foreign institutional investors have sold shares worth $0.24 billion this month but remain net buyers of shares worth $0.1 billion in the year till date.

Cash volumes on the exchanges have also continued to dip this fiscal. According to a recent presentation by Motilal Oswal, the cash segment comprised 9% of total market volumes in the second quarter of FY12, down from 11% in the previous quarter and 16% in the second quarter of FY11. Within the F&O segment, options comprised a high of 69% of total volumes in the second quarter of FY12, up from 67% in the previous quarter and 53% in the year-ago quarter.

Brokers have been trying to woo retail investors for some time now by offering products such as equity SIPs that encourage investors to stay invested even when the markets are volatile.

?We want to ensure that our clients don?t lose any money. So we are advising them to put some money in debt instruments and enter the markets in a staggered manner. Bulk investments are a strict no-no,? Prabhakaran said.

Retail investors give better yields than intra-day traders or high net worth customers as they take delivery and generate more volumes as they trade more often, thus adding to the profitability of brokerages. For the cash market, rates vary between 10 paise and 30 paise, while for the F&O segment rates could be as low as 0.5 paise. Brokerage for delivery trades are 5-10 times higher than intraday trades.