Retail investors expect moderate bull ride

A majority of retail investors expect the Bombay Stock Exchange (BSE) benchmark, the Sensex, to cross the 22,000 level during calendar year 2011, showed a Morgan Stanley survey, released on Monday.

Conducted among 600 urban equity investors, with an average annual income of $13,500 (about Rs 6 lakh), their conviction on equities is quite high.

Of the sample, 41 per cent are highly confident or very highly confident of their views. Only 15 per cent expressed low conviction levels on their views, the survey results showed.

On an average, retail investors expect the Sensex to close the year 14 per cent higher than current levels, the survey found. Based on Monday’s close of 18,943.14, this would translate into the index closing above 21,595. Of the total sample size, 65 per cent expect it to cross 21,000 during 2011.

“Our recent surveys of institutions and high net worth (HNI) institutions suggest a bearish buy-side but a hopeful HNI investor,” said Sheela Rathi and Ridham Desai, strategists at Morgan Stanley India.

Among the key factors driving the Indian market, 30 per cent of retail investors believe the global markets will be critical. Also, they feel politics is a bigger concern than inflation for Indian equities.

Retail investors opted for technology and telecom as the most attractive and least attractive sectors for 2011, respectively, the survey showed. “Notably, these sectors were the best- and worst-performing sectors in 2010, respectively, and the anchoring is quite obvious,” Morgan Stanley strategists said.

Like institutional investors and HNIs, retail investors are likely to apply stock picking as a strategy in 2011, the survey found. About a quarter of those surveyed thought valuations of Indian shares were expensive and would buy only on correction.

Investors expect bank deposit rates to be unchanged from current levels during 2011, at around 9.4 per cent, the survey found. “Notwithstanding the sampling biases, this is an important takeaway, given the raging debate on inflation expectations,” the strategists said.

The retail investors surveyed have an average investment horizon of 12 months and, on average, track their portfolio weekly. They invest 20 per cent of their income in savings and 31 per cent of that in equities.