Retail Investors: Sellers of Rs. 21,800 crore Shares, Buyers of Rs. 61,089 Crore MFs..!

Low participation in the share market rally by individual investors continues to be a concern for the broking sector.

Stock Exchange data suggest individual clients have been net sellers at Rs. 21,805 crore so far this financial (2014-15) year. This includes retail investors and wealthy persons (high net worth individuals or /HNIs).

“The volatility we have seen in the stock market is something we have not seen in the past. Naturally, investors are worried and don’t know how to handle the uncertainty. Which is why they prefer mutual funds (MFs), which are professionally managed and offer diversity in stocks,” said Mr. Chokkalingam G, founder, Equinomics Research and Advisory.

However, share brokers argue the activity at their terminals has increased, indicating an increase in retail participation.

By sector estimates, the activity ratio, between active clients & the total client base of brokerages, is now 10%, up from 3% to 4% about 2 years earlier. Activity need not necessarily be buying; investor selling can also contribute to a rise in activity levels.

“There is some amount of retail participation in direct equities. But, not to the extent in 2007-08. At the same time, there has been a shift from direct equities to the SIP (systematic investment plan) route of MFs,” said Mr. B. Gopkumar, Head, Broking, Kotak Securities.

As of February, equity MFs saw 11 straight months of inflow, of nearly Rs. 61,000 crore. The activity ratio in 2007-08 was 30% to 40%, sector officials said. Brokers continue to believe the ratio will be back to its historic highs in the next one or 2 years.

“But what we have observed in the past is that retail first participates through the SIP route and then goes to direct equities. Basically, once their SIP returns improve, they get the confidence to come back into direct equities,” said Mr. Gopkumar.

Between April 2014 and February 2015, the first 11 months of this 2014-15 financial year, the equity markets have returned 31%, in a rally that has seen sectors across the board participating at one time or / another. However, volatility has also been higher, analysts said.

“Even though this is not the best participation that MFs have seen, they have seen a lot of interest from investors in the last one year. Also, they have come to realise that equity investment requires a certain of expertise and outsourcing this to a fund manager would be better than managing it yourself,” said Mr.. Vineet Arora, Executive Vice-President, ICICI Securities.

Wealth managers believe the inflow that equity MFs have seen so far will continue to rise, as investors look for more long-term gains.

Further, many equity MFs have outperformed their benchmark indices.

According to online MF tracker Value Research, in the past year, different equity MF categories have given returns of 30% to 80%.

“Many MFs have done better than individual portfolios, which is why we believe the additional inflows we have seen so far are here to stay. 

Investors are now coming into MFs with a long-term perspective, which shows increasing confidence in the product category,” said Mr. Arun Gopalan, Vice President (Research), Systematix Shares & Stocks.

src: BS

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