Where have all the retail gone?

Retail investors' participation in the equity cash market is at a seven-year low, with more and more savings finding their way to properties, gold, risk-free avenues like bank deposits and high-yield debt instruments. The daily average volume of retail turnover is down to Rs 6,690 crore in 2012 - the lowest since 2005 and a 51% drop from the peak of Rs 13,709 crore in 2009. The daily average volume generated by retail investors was Rs 10,882 crore in 2010 and Rs 6,690 crore in 2011. The markets have been range bound in the last three years. While the Sensex has risen 12% during the period, there was a 9% negative return between 2007 and 2012 on the BSE Midcap index. Midcap stocks belonging to sectors like real estate, infotech, infrastructure and capital goods - favourites among retail investors - have moved little. This, feel intermediaries, could be the prime reason behind retail investors deserting the equity market. "Retail investors have diverted their funds to real estate and risk-free investments such as bank deposits and national savings scheme, as the equity market has been more or less static in the last five years," said Vinay Agarwal, executive director - broking business, Angel Broking. The lower stock turnover from retail investors translated into lower transaction-based revenues for brokerages. The turnover for the top Indian brokerages declined 10% to 60% in FY 2012. While Indiabulls Securities' standalone turnover fell 62% in the year ended March, Edelweiss' standalone turnover declined 53% from the previous year. "Retail investors are not making money from the stock market. They are shifting money to high-yield debt instruments, tax-free bonds and gold," said Rahul Rege, business head (retail), Emkay Global Financial Services. These instruments give an annualised return of 9%-9.5%, he said. Even in mutual funds, equity asset base has shrunk with many retail investors drawn to fixed maturity plans. As on June, equity assets declined 7% year-on-year to Rs 1.5 lakh crore, while income, liquid and gold ETF assets gained 3%, 11% and 81%, respectively. In 2011-12, 718 fixed maturity schemes raised Rs 1.17 lakh crore. "Retail investors' participation in equity market remains lacklustre compared to FIIs and DIIs. They prefer liquid funds and fixed maturity schemes to equity schemes," said Sananand Shetty, VP and senior fund manager, Taurus Mutual Fund. Till 2005, retail investors were active in the Indian equity market. Their contribution to the daily turnover was over 75%, while foreign institutional investors (FIIs) contributed about 14%. But, since then, the trend has changed. In 2012, FIIs' contribution to the daily turnover grew to 35% while retail investors' contribution declined to 48%. The percentage daily turnover attributed to domestic institutional investors doubled from 8% in 2007 to 16% in 2012. via ET