Retail buying in equities in September the lowest in at least eight years

Retail investor participation in equity markets, which has been dwindling over the last few years, has just hit a new low. With just a day to go, the gross monthly buying of equities by retail clients in September stands at the lowest level in the last eight years (the period for which exchange data is available).

As per category-wise turnover data on BSE, the clients – both retail and high networth individuals – have so far in September bought equities worth Rs 16,595 crore.

This is the lowest monthly gross buy figure since January 2005 and is nearly a third lower than the average gross monthly buying figure of Rs 24,568 crore for the first five months of this fiscal.

That’s not all. On a net basis, September has also witnessed the highest monthly outflow in two-and-a-half years. The clients have so far net-sold equities worth Rs 2,125.4 crore on BSE, which is the highest since April 2011 when they had sold equities worth Rs 2,226.22 crore.

High market volatility, along with uncertain outlook and lower expected economic and corporate earnings growth, seems to be playing on the investors’ minds, believe experts.

Jitendra Panda, head of broking at Capital First Securities, said the extreme market volatility over the last 3-4 months across asset classes has made investors clueless on where to put their money. “Investors are finding it difficult to assess the implications of various deteriorating macro factors on their investments. Retail investors, who usually invest in midcaps, have seen a sharp fall in their investments as the Sensex tanked from 6000 to 5200 and are cautious now to put in more money. Also, many of them are booking profits as the broader markets have somewhat recovered from their lows.”

While the Sensex trades just 6-7% off all-time highs, the midcap and small cap indices are still 45-60% away from their all-time highs.

It isn’t only direct equity investments the investors are shying away from. Even mutual funds continue to see heavy redemption.

Mutual funds have net-sold equities worth Rs 2,900 crore so far in September, taking their outflows to Rs 16,467 crore so far in calendar 2013. 

Ridham Desai, strategist and head of India equity research, Morgan Stanley, also believes that the fall in domestic equity savings has in a way been responsible for high market volatility.

“Even though equities are a long-duration asset, households in India tend to evaluate them on one-year performance. Also investors expect 9% higher returns from equities as compared with bank deposits to consider increasing equity exposure. Unless this anchoring changes, India’s dependence on the rest of world for risk capital will continue and therefore expose its equity markets to the volatility of global capital markets,” Ridham Desai, Sheela Rathi and Utkarsh Khandelwal, analysts at Morgan Stanley, wrote in a note dated September 16.

Morgan Stanley, which did an online survey of 837 investors of financial assets in Tier I cities during May-June, believes the share of equities in financial investments is not expected to grow in 2013-14, driven by high concerns on volatility, lower-than-expected returns in 2012-13, and investors’ low risk appetite.