Retail, HNI clients net-sellers by over Rs 21,000 cr in FY15

Emerge net sellers of Rs 21,800 crore in FY15, prefer mutual funds over direct equity investment

Low participation in the market rally by individual investors continues to be a concern for the broking sector. Exchange data suggest individual clients have been net sellers at Rs 21,805 crore so far this financial year. This includes retail investors and wealthy persons (high net worth individuals or HNIs).

“The volatility we have seen in the 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 Chokkalingam G, founder of Equinomics Research and Advisory.

However, brokers argue the activity at their terminals has increased, indicating an increase in retail participation. By sector estimates, the activity ratio, between active clients and the total client base of brokerages, is now 10 per cent, up from three to four per cent about two 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 B Gopkumar, head of broking, Kotak Securities.

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

Between April 2014 and February 2015, the first 11 months of this financial year, the equity markets have returned 31 per cent, 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 past 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 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 32-80 per cent.

“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 Arun Gopalan, vice-president (research), Systematix Shares & Stocks.