Niranjan Kumar, a Pune-based investor, says he has not been taking any investment calls of late. “I am staying put. I am not able to take any call due to market volatility,” he says.
Kumar, who has been investing in shares for seven years, says he is barely “at the money,” meaning has not made any gain or loss. Kumar will invest if the Sensex falls to the 15,000 levels and liquidate if it crosses 22,000. “15,000 looks more likely,” he says wryly.
Kumar isn’t alone. The Sensex, which has been moving between 17,000 and 21,000 for over a year, has put off individual investors, both small and high net worth, dragging down their share in the total market capitalisation.
According to data complied by BS Research Bureau, the share of retail investors in the market cap of actively-traded stocks on the Bombay Stock Exchange (BSE) has dipped to a five-year low. At the end of March 2011, retail investors accounted for 15.86 per cent market capitalisation of 3,214 actively-traded stocks on BSE. This is much lower than the 19 per cent they held in 2,486 actively-traded companies at the end of March 2006. (Click here for graph)
Their share started falling in 2007 and dipped below 16 per cent at the end of 2008, shortly after the Sensex collapsed from its highs of January 2008.
Parag Parikh, chairman of a financial advisory company, said the shareholding pattern was influenced by investors’ response to market trends. “In a bull market, it goes up. In a bear market, it comes down. I don’t think you should read much into it.”
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Retail investors’ share rose to 16.5 per cent at the end of March 2009, but has been declining since. Interestingly, this decline has coincided with the expanding share of foreign institutional investors (FIIs). In the past two years, the FII share has risen to 14.8 per cent on back of record inflows in 2009 and 2010.
This year, though, even FIIs have been looking at other markets. In 2011, they have bought shares worth a paltry Rs 350 crore. With both FIIs and retail investors staying away, India has been one of the worst performing markets in 2011 (it has fallen 10 per cent).
Even the primary market, of late dominated by issues of government companies, has not been able to attract retail investors. According to a recent Business Standard study, eight of 12 such issues launched after the United Progressive Alliance government returned to power in May 2009 are trading below issue prices. The private sector issues have also done badly. Since May 2009, 95 such issues have been launched. Close to 70 per cent are trading below issue prices.
While initial public offers (IPOs) of a few small companies got huge subscriptions, their credibility came under cloud after the market regulator said Vaswani Industries’ IPO subscription numbers were artificially bloated.
Retail participation in mutual funds is also declining. According to data from the Association of Mutual Funds of India, the number of retail folios or investor accounts fell from 40.9 million in March 2009 to 38.64 million by the end of March 2011. While many folios were closed as investors booked profits when the Sensex doubled between 2009 and 2010, new accounts were not opened due to lack of incentives for distributors, said some fund managers.
Amar Ambani, head of research at IIFL (India Private Clients), says investors are facing a number of near-term uncertainties. “FII inflows have been muted. The Centre’s dithering on fuel prices and other important policy issues is another cause for concern,” he said in a note to investors.
Investors, on their part, are dealing with the situation in their own ways. For instance, the Saxenas, based in Noida, have drastically reduced stock market activity over the past one year. “A year ago, they used to trade heavily. But their activity has fallen drastically as there are no buying or selling opportunities,” says Pankaj, Saxenas’ advisor and a Fairwealth Securities franchisee.
Some investors are adopting a systematic approach. Mumbai-based Nazim Khan, a small investor in his mid-twenties, keeps 40-50 per cent money in fundamentally strong stocks, one which he wants to keep for the long term. Khan says he allocates money to these stocks regularly.