Market volatility spooked small investors in FY16

Most remained cautious, preferred mutual fund route

The previous financial year, which ended on Thursday, was a tough one for retail (small) investors, spooked by the sustained volatility in Indian equities.

Participation by these investors hasn’t picked up despite the run-up in equities in 2014 and the early part of 2015, said experts. In contrast, high net worth or wealthy investors (HNIs) used the correction in the market as a buying opportunity.

“The market has been volatile through last year, which is why retail investors have stayed away,” said G Chokkalingam, founder of Equinomics Research and Advisory.

According to estimates, retail cash volumes in FY16 declined on average by 10 per cent over FY15, in a year when the benchmark Sensex slid 9.4 per cent. A deficient monsoon, shaky global markets, sliding global crude oil prices and subdued corporate earnings were key events that impacted Indian equities in FY16. China witnessed a slowing, with the country devaluing its currency to put its economy on a path of recovery.

“It’s about lack of faith in equities and that hasn’t changed in the past few years. These investors often don’t get the right kind of advice and are vulnerable to speculation, which is why they lose money,” said Rahul Rege, business head-retail, Emkay Global Financial Services.

“Ninety per cent of retail investors simply go by market rumours or hearsay information while investing in the markets. Only 10 per cent use research reports or question the recommendations offered by brokerages,” added Chokkalingam.  

Most of the retail money in FY16 came through the mutual fund (MF) route, not direct equity. In FY16 (till February), equity MFs received total inflows of Rs 75,400 crore, a record high for the sector in a year. The bulk of the money, Rs 2,500-3,000 crore, came through Systematic Investment Plans (SIPs).

According to estimates, half the money in FY16 had come into mid-cap funds, 35 per cent in multi-caps and another 10-15 per cent in large-cap funds. "While the benchmark indices stayed choppy, mid-cap stocks rallied till December last year, prompting investors to put money in mid-cap funds," said Manoj Nagpal, chief executive officer (CEO) of Outlook Asia Capital.

Himanshu Vyapak, deputy CEO at Reliance MF, says investors who have gone through different market cycles have understood the importance of rupee-cost averaging and disciplined investing for long-term wealth creation.

"The SIP numbers, as well as their average ticket size and tenure, has seen an increase," he said.

According to Vyapak, currently half the SIPs are from what is termed the B-15 locations, meaning from other than the top 15 cities. Fund houses have been pushing aggressively into tier-II and tier-III cities, after the Securities and Exchange Board of India allowed them to charge an extra 30 basis points as part of their total expense ratio for inflows from these regions.

The assets under management of equity MFs rose to Rs 3.2 lakh crore in February 2016 from Rs 3 lakh crore in March 2015.