MUMBAI: Small investors are becoming less significant players in the stock market and opting for mutual funds.
The shareholding of such investors in 257 out of the 412 companies that make up BSE 500, the Bombay Stock Exchange’s index of 500 companies, declined between March 2006 and December 2006. In the same period, the shareholding of mutual funds in 239 companies has increased.
Data from Capital Line, a database service, was not available on the remaining companies. BSE 500 represents the market and accounts for 93% of all trades on the street, by value.
That does not mean small investors are exiting stocks, claims Kedar Deshpande, a vice-president at ICICI Direct, India’s largest online brokerage with 1.1 million accounts; the brokerage adds between 40,000 and 50,000 accounts every month.
Not everyone is convinced. Some market analysts point to the extinction or near-extinction of 21 regional stock exchanges and say that the numbers being added by online brokerages could be investors moving from those exchanges.
“Traditionally, when there was a boom in the market, there would be a crowd of investors at the broker’s office and we are not seeing that,” says C.J. George, managing director at Geojit Securities, a Kochi-based brokerage.
He is worried that this trend is seen in initial public offerings too. “Only traditional primary market investors have been investing in IPOs this year and we have not seen the base (of investors) growing,” he adds.
All IPOs need to have 35% of the issue reserved for retail investors; some recent issues including that of Cairn India have failed to get adequate retail support although the portions reserved for institutional investors have been subscribed many times over. The real reason for the decline in small-investor interest in equities may have to do with their increasing fascination with mutual funds.
Between 31 March 2006 and 31 December 2006, the assets under management of mutual funds increased from Rs2,31,862 crore to Rs3,37,310 crore.
And between 1 April 2006 and 24 January 2007, 30 mutual funds made a net investment of Rs11,230 crore in the market, according to data provided by India’s stock market regulator Security Exchange Board of India (Sebi).
Although, there is no break-up of corporate and retail investments in mutual funds, fund managers insist that the share of retail or small investors has been growing.
“The share of retail investors in mutual funds is becoming larger,” says V.Shankar, managing director, Computer Age Management Service, the largest transfer and registering agent for mutual funds.
Other market statistics too do not point very convincingly to a growth in the number of retail investors. All investors in shares need to have dematerialised (or demat) accounts to hold shares in electronic form.
The number of dematerialised accounts has increased from 9.1 million in March 2006 to 9.9 million in December.
There could be a maximum of 9.9 million retail investors in India. The actual number may be much lower with several investors holding dematerialised accounts with the two organizations providing them National Securities Depository and Central Depository Securities.
The two organizations are also closing the accounts of those customers who cannot provide them with a permanent account number issued to them by the income tax department.
They have also closed down multiple accounts maintained by the same individual, reducing the number of accounts to just over 6 million.
Even 9.9 million translates into less than 1% of the Indian population, much lower than the government’s own estimates.
A survey conducted by the market regulator and the National Council of Applied Economic Research in 2003 estimated that 3.7% of the population invests in shares.
With Rachna Monga’s input