Retail investors book profits, keep closing equity accounts

MF industry witnessed 4 million equity closures in FY14

India’s retail investors appear wary of the recent steep rise in stock markets. After continuous positive inflows since November,, they chose to book profits and walked away during March as the indices hit record highs.

Investors redeemed units worth Rs 1,935 crore in March and closed many equity folios. Closures were 365,000 accounts, the largest since December. With the latest high number of folio closures, mutual funds lost about four million equity accounts in 2013-14.

Milind Barve, managing director of HDFC Asset Management, the largest fund house, says: “The second half of FY14 had a strong recovery in stock markets. Investors used higher levels to get out. However, the bulk of the investors tend to stay back.”

Since 2010-11, there has been a rapid decline in MF equity accounts. It fell from the high of 41.1 million in 2009 to 29.1 million. “One should not be carried away with equity closures,” counters Barve. “The good part in FY14 was that interest among retail investors for equity investment was coming back. There have been redemptions but investors walked out with profits,” says Sundeep Sikka, chief executive officer of Reliance MF.

Insiders have been long saying that there is a need for a strong and sustainable rally, to pull retail into equities. In FY14, no such major attraction could be seen despite the indices gaining 20 per cent.

S Naren, chief investment officer at the country’s second largest fund house, ICICI Prudential AMC, says: “The first half of FY14 was choppy. In the second half, due to improvement in macro economic factors, the market surged. However, investors cut their allocations to equity as an asset class.”

“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,” says Dhirendra Kumar, head of Delhi-based fund tracking firm Value Research. It had been, he said, a year of risk-aversion.

Through FY14, the sector saw a net outflow of Rs 9,267 crore from equity schemes, though better than the previous year.

Barring one month, fund managers were forced to keep selling their holdings to honour redemptions. Data from the Securities and Exchange Board of India shows fund managers sold shares worth Rs 20,900 crore in FY14. In March alone, they sold stocks worth Rs 3,735 crore, amid a strong rally in the stock markets.