Retail and high net worth individual (HNI) investors have been net-sellers of direct equities for the last 18 months since February 2014.
So far, this month, retail and HNI investors have been net-sellers at Rs 975 crore, showed cash market data from exchanges.
The risk-return dynamic in the market has turned unfavourable for investors, making them very nervous about getting into equities through the direct route, said market-men.
“Markets have turned so volatile that the risk of equity-investing has also increased manifold. Today, it is not possible for an individual investor to keep track of all that is happening in the market to take investment decisions on his own,” said Chokkalingam G, founder and director, Equinomics Research & Advisory.
In the last 18 months, Indian markets have returned 34 per cent but with bouts of volatility brought on by the general elections held in May 2014, the end of the monetary easing policy by the US Federal Reserve, concerns about an increase in US interest rates, fall in crude oil prices, slowing growth in China, domestic growth concerns and recently, the Greek crisis, which threatened to disrupt the Euro and spiraling the world economy into another depression. Some of these issues continue to rattle markets, further aggravating the nervousness and uncertainty in market sentiment. Chokkalingam believes that as market volatility continues, more and more investors would turn to professional managers like mutual funds, insurance companies, and portfolio managers, to better manage their equity portfolios. The numbers are already proving this as the equity inflows into domestic mutual fund schemes has continued unabated for 15 months till this June.
“Over the last one-and-a-half years, inflows from domestic investors have been quite strong given the market movement. We expect the momentum of inflows to continue going forward,” said Karan Datta, chief business officer, Axis Mutual Fund.
Industry experts said the rise of advisers and fund management professionals have also seen many people shying away from direct equities.
“There is a realisation among people now that professionals are best-suited to managing equity investments, especially in markets like this,” said Chokkalingam.
However, other experts point to the rising activity ratio in the market. Activity ratio, which refers to the ratio of active investors to the total investor-base, has been constant for over one year at around 10-12 per cent, up from its lows of three-four per cent about five years ago.
The heightened activity ratio suggests that investors are booking profits now, rather than exiting entirely, they said.
“The activity-level in the industry has clearly gone up, which indicates higher participation by retail investors. The volatility in the market has resulted in a lot of churning in the market, as investors book profits. But to say that investors are moving out of direct equities would be unfair,” said Vinay Agrawal, executive director of equity broking at Angel Broking.
The increase in derivative ticket size is expected to further weigh on retail participation. The Securities and Exchange Board of India has recently moved to increase the minimum investment in derivatives from Rs 2 lakh to Rs 5 lakh.