Retail investors, MFs cash out of rally

The bulls are enjoying the stock market's quick run above the 15000 mark. The foreign investors are widening their India exposure, pumping record money into the domestic markets. But domestic investors seem to be wary of the market's ascent.

Individual investors, mutual funds and other domestic investors have not participated in the recent rallies, which saw the market zooming up at record levels, mainly on back of FII inflows.

As per data available with the Bombay Stock Exchange (BSE), retail investors sold equities worth Rs 7,404.59 crore on the bourse, while mutual funds were net sellers of Rs 872.54 crore in overall Indian markets. Data about the category wise turnover on the National Stock Exchange (NSE) was not available.

"Yes, it is true that domestic investors have not participated in equities in 2007. They have been on the sell side directly as well as through mutual fund redemptions. However, they have shown an exceptional interest in the primary market, new fund offers and insurance policies, especially unit linked ones. Thus, retail investors are coming through secondary equity participants," Dinesh Thakkar, chairman and managing director, Angel Broking said. The brokerage has 2,38,00 retail clients with a network of 6,370 trade terminals.

Thakkar said hardening interest rates and the availability of other indirect ways of investing in the markets leading to a decrease in retail direct participation.

However, FIIs confidence on the domestic markets has been on rise. During the first half, the global investors have infused net $8.45 billion passing the total investment of $7.99 billion in 2006.

However, following the rupee appreciation, the net foreign investment is still short of total investment in 2006 if put into Rupee terms.

Analysts say investors, including fund houses and banks, are booking profits, as few stocks are getting very good valuations.

Especially fund houses which have come out with good equity collection in last few months, are not investing into securities and have preferred to sit on cash. As per industry estimates, the MF industry is sitting on Rs 25,000 crore cash-pile.

"Indian mutual funds have not participated in bull rallies, mainly because they prefer to enter at lower levels. They have been selling equities, but this is mainly to earn profits and take new positions as many funds have fresh money come from recent NFOs," a top executive with a public sector fund house said.

The cautious approach of the investors also reflected in trading of the domestic institutional investors (DIIs), who including the banks, insurance companies and mutual funds have sold net stocks worth Rs 1,461.93 crore in July. During the same period the FIIs gross share purchase has been Rs Rs 35,309.24 crore, almost three times of DIIs Rs 12,047 crore.

The retail investors bought shares worth Rs 3,58,025.53 crore on the BSE while shedded equities worth Rs 3,65,430.11 crore on the same exchange, becoming net sellers of Rs 7,404.59 crore in 2007. In July, these investors have sold net equities upto Rs 1,776.69 crore and booked profits as the market has been hoovering around its all time record levels.

However NRI investors chose to buy securities, as their total equity buying stood at Rs 337.77 crore against sell of Rs 270.29 crore on the BSE, resulting into net buying of Rs 67.49 crore. Proprietory investors accounted for net buying of Rs 714.51 crore on the bourse.

The benchmark Sensex has grown 9.75 per cent from 13,942 point level at beginning of the year to Wednesday's close of 15,301 points. The period also witnessed big public issues like DLF and ICICI Bank hitting the markets.

Both issues got buyout response from qualified institutional buyers. But, the realty player DLF did not enjoy full hand participation of the mutual funds as funds have been sceptical of real estate investments.

Retail participation to both issues was not significant as both issues hardly managed to complete their retail quotas.