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"Don't follow what majority does, majority never makes money in stock markets," one of India's top most fund managers recently had told Business Standard.
This fits well when it comes to India's retail investors who access stock markets through equity mutual funds.
The country's fund managers kept crying foul to attract investments in their equity schemes for almost last half-a-decade. Unfortunately, their advices and suggestions fell on deaf years as retail investors could no more keep their patience and missed no opportunity to exit their investments - no matter even if they had to book losses. This has been the general phenomena at least for the last five years.
However, had they listened to those advices, the minimum return they could have easily made would have been, at least, double of their investments. In other words, every investment of Rs 100 would have a current value of anywhere between Rs 200 and Rs 400, irrespective of the fact that last five years have been one of the darkest patches for Indian shares.
Making money! That too amid tough scenario when all factors are negative? It sounds strange, but it's true.
But majority of the investors taking exposure in stocks through equity mutual funds could not muster courage to pump in funds when Sensex dipped to below 10,000 levels while CNX Nifty was hitting 3,200 levels.
Forget pumping fresh money, investors did not even remain invested only to book losses amid panic selling.
Prashant Jain, chief investment officer (CIO) at HDFC Mutual Fund, said, "A vast majority of investments in mutual funds have come in after the markets have gone up substantially and when markets are expensive. On the other hand, redemptions are more at lower P/Es. Such an approach to investments does not lead to good returns."
A look at the last five years performance show that it's the equity schemes which have completely dominated the performing chart. The top 10 schemes, which generated the highest returns, are from equity's stable. Be it funds in FMCG, Pharma, Technology, Mid & Small Cap or for that matter even the schemes focused on bank stocks.
For instance, every Rs 100 investments in FMCG funds would have seen a four-fold increase to Rs 400 while the same amount in Phama, Technology schemes would have stood at Rs 389 and Rs 332, respectively. Certainly, one should not ask anything more than this.
Well, markets did what it had to do. But did our investors have the patience, the discipline or the belief in equities? Sadly, majority lacked and failed on all these parameters.
S Naren, CIO at ICICI Prudential Mutual Fund, said, "Industry has not been seeing good inflows as investors cut their allocations to equity as an asset class,". According to Jain, local investors' holdings in equities have been one of the lowest in recent years.
Not less than a whopping 12 million equity folios stood closed during 2009-2014. Redemptions surged so much that fund managers were more worried about how to honour rising withdrawal requests than managing money. Fund managers were on a heavy selling spree and sold shares worth more than Rs 75,000 crore - a massive liquidation.
Unfortunate part of the game was the fact that this selling happened when India's markets had been on its path back to reconquer its earlier peaks. Though, foreign investors pumped in heavily and made quick bucks but local investors remained on the sidelines for a very long time.
"The 20,000 mark for Sensex was a big level in investors' mind for all these years. Whenever, markets used to hover near about this, those who had been stuck since 2008 were first to redeem their units. This went on and on," said Akshay Gupta, CEO of Peerless Mutual Fund.
The markets are once again scaling new highs in recent times. But still there is no substantial inflows in equity schemes. Dhirendra Kumar, CEO of Delhi-based fund tracking firm Value Research, said, "Investors will regret that they remained on the sidelines. It was a sharp rally and I do not think investors would come at this moment."
One fund manager made a sarcastic remark when asked about retail investors' entry, saying, "I think retail would come when Sensex would be at 27,000; only to burn their hands once more."
It's important to note that in recent years there have been a great push for investors' education programmes. Whether it is industry body Association of Mutual Funds of India (Amfi) or the markets regulator the Securities and Exchange Board of India (Sebi), all have been quite active to spread investors' education.
It is yet to see how successful these initiatives will be.
