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Wednesday, January 09, 2013

Equities, in retail investor’s blind spot!
[The retail investors have been treated badly not only by the brokerage houses but also by the stock exchanges and the government of India. The stock exchanges are one of the biggest culprits for the exit of retail investors from the markets. These people suddenly, change the circuit of the stocks to as low as 1.82% (does it make any sense) or go on lowering circuits everyday or allow the scrips to hit 3-4 consecutive 20% upper freezes before going for any circuit change and so on. There is no end to their manipulation, due to their virtual monopoly over the trade. If there were other active exchanges like Calcutta, Madras, Delhi, Bangalore, Ahmedabad, etc exchanges, then they (BSE/NSE) would not have been so manipulative and exploitative towards the retail investorsBesides, changing the circuit of a scrip everyday is a pure joke. Moreover, in some cases, when a scrip is falling the circuit is suddenly increased like in case of United Breweries (Holding) Ltd. Also, the stocks are kept in T-group not for days, but for months and months, without citing any reasons for the same. The rules are made tougher and tougher everyday and so many documents are needed to open an account, that, lazy investors, don't even want to open fresh accounts, forget investing. Another point worth noting, which I mentioned a number of times is to allow a company  to go on posting wrong telephone numbers not for months but for years. The stock exchanges hardly take any action against the  promoters, who do not declare anything to the shareholders, through the two major stock exchanges. On the other hand the government has hardly come  up with any attractive plan during the last  5 -years to attract the small investors. The apathy of the retail investors towards the market would continue as long as there is no change either in the mentality of the brokerage  houses, or Stock Exchanges or GOI]
Once considered to be an important wealth enhancer for retail investors, equity as an asset class, has been continuing to fall out of favour during the past couple of years!
In fact, an argument in favour of equities has no feet to stand on, considering the fact that the past five years absolute returns have been negative…while investment options such as property and gold, historically considered safe investments, have given multi-fold returns during the same period.
As a result of all this, the retail investor has ended up questioning the basic logic of wealth creation through long-term investments in equities.
During the past 18 months, numerous attempts by financial advisors/brokers, advising a build up of their equities exposure has fallen on deaf years.
The unstable political environment, weakening economy and high interest rates have only made matters worse for a case for equities as an investment option.
While CY 2012 has been a year of recovery, given that the Indian equity markets are almost back to the levels where they were at the close of CY 2010 after losing nearly 25 per cent in CY2011. CY2012 has been a mixed-year, wherein, for almost two-thirds of the year (till Aug 2012) it seemed like the markets weren’t headed anywhere and therefore retail investors either preferred debt, property and gold.
While a few wise and brave hearted investors took equity exposure in defensive sectors such as FMCG, pharma, consumer durables.
In fact, in spite of the markets having moved up to within touching distance of its all-time high, the apathy towards equities continues.
It’s the same story at all retail brokerage firms, the retail cash and delivery volumes continue to be nearly 50 per cent lower than FY11, with most investors looking to exit the remnants of their portfolios that have been dormant the past couple of years.
Even the domestic mutual funds (indirect route for retail investors) were net sellers of nearly $9billion for the same period.
While the FIIs, in stark contrast, invested almost round-the-year but were more aggressive in the later part of the year, the total FII investments were in the range of $20+ billion in CY2012.
All-in-all, participation in equities by retail investors continues to be pathetic. Most people continue to be loading up more on property and gold as a preferred option, putting equities in a complete blind spot!
While property and gold are unlikely to continue their stupendous up move over the next two-three years, equities are very likely to perform. Clouded by past pain, retail investors seem to be ignoring the likely impact of the government’s positive actions like, FDI in Multi-Brand Retail, Loan Recast for SEBs, Diesel-price hike, FDI in Aviation, New Banking Bill.
Also, with inflation seeming to come under control a significant reduction of interest rate in the first-half of next year is also likely to have a positive impact on the Indian equities market.
However, the retail investors continuing under-ownership in equities is unlikely to see them benefit much from any future up move in equities…unless something manages to bring about a dramatic change of the retail investor sentiment!
(The author is Business Head Retail at Emkay Global Financial Services. The views are personal)