Data compiled by FE show that, in the three months to September 2014, retail investors holding in the top-traded Indian companies saw a marginal improvement for the first time in three quarters even as the benchmark indices scaled multiple record highs in the last one year.
During the September quarter, their cumulative ownership in the 494 of the BSE 500 companies went up by a moderate 9 bps to 6.4%, while FII ownership of the universe went up by a more significant 50 bps to 14.5%. Between quarters ended December 2013 and June 2014, retail investors holding had declined 30 bps to 6.29%. Investors who possess a nominal share capital of up to R1 lakh in a company have been classified as retail investors for the compilation.
Experts cite this reading as a reaffirmation of higher participation of retail investors in the market, although parameters like mutual fund flow into equities and the retail cash market turnover have also hinted at improved activity.
According to Vinay Agarwal, executive director, Angel Broking, market peaks of the first half of the year were seen as an exit opportunity by smaller investors. Towards the election, many retail investors turned active, but they were primarily booking profits. However, their interest in equity market has improved in the last few months. As the market maintained its upward bias after a favourable election outcome, they realised that we are in a more sustainable bull run now, said Agarwal.
Market observers point out that a combination of positive domestic factors has resulted in enhanced investment confidence. A strong performance of Indian benchmarks with the 30-share Sensex emerging as the best performing index in the world has supported their conviction. Sensex has rallied 31.5% in 2014 so far.
In a recent research note, JPMorgan noted that after four years of consistent aversion, factors like under-ownership, policy incentives and relative out-performance are likely to support retail investors equity interest.
As per Sunil Subramaniam, deputy CEO, Sundaram Mutaul Fund, besides the positive sentiments that followed the election outcome, the Union Budget, Q1 GDP numbers, falling inflation and several policy announcements have helped investors realise that the current rally is based on fundamentals.
Supported by these developments, retail investors are tapping equity markets through both direct and indirect route, i.e., mutual funds.
According to B Gopakumar, EVP and head, broking, Kotak Securities, there is significant improvement in retail participation in the market from the last year. He says that in the last five months, the number of client acquisition has gone up three times. Nearly 50-60% of these clients are maiden investors through broking although they may have used mutual funds earlier.
In the September quarter, retail investors have pumped R23,821 crore into equity mutual fund schemes, more than two times their investment in the previous quarter.
While we have observed keen interest in our micro- fund launches in the recent past, about 5% of our expanded customer base are new clients, added Subramaniam.
Meanwhile, data compiled through Capitaline shows that smaller investor increased their holding of nearly 254 companies while reduced that in 234 stocks. Their buying interest appeared broad based although it was more inclined towards beaten down mid-sized companies from infra, power and banking space.
For example, for the leading bluechips like TCS, ONGC, Maruti Suzuki, Tata Steel, ICICI Bank, SBI, HDFC Bank and Reliance Industries the retail ownership has witnessed marginal changes of the order of 1 to 8 basis points.
On the other hand, their ownership in Tata Power (down 23% in the quarter) , GMR Infra (-49%), Lanco Infra (-44%), JP Power ventures (-48%), IVRCL (-42%), GVK power Infra (-47%), Unitech (-44%), increased by 46 bps to 172 bps.
Stocks like Bhushan Steel and Financial Technologies that were under intense selling pressure during the quarter due to debt restructuring issues and development in relation to the NSEL scam, respectively found buyers amongst smaller investors.