Low participation in the market rally by individual investors continues to be a concern for the broking industry. Exchange data suggests that individual clients have been net-sellers at Rs 21,805 crore in the first 11 months of the financial year. This includes both retail investor as well as High Networth Individuals.
"The kind of volatility that we have seen in the market is something that we have not seen in the past. Naturally, investors are worried and don't know how to handle the uncertainty. Which is why they prefer mutual funds, which are professionally managed and offer diversity in stocks," said Chokkalingam G, founder of Equinomics Research and Advisory.
However, brokers argue that the activity at their terminals has increased indicating an increase in retail participation. As per industry estimates, the activity ratio, that is the ratio between active clients and the total client-base of brokerages, now stands at about 10%, up from 3-4% about two years ago. Activity need not necessarily be buying, investor selling can also contribute towards an increase in activity levels.
"There is some amount of retail participation in direct equities but not to the extent we saw in 2007-08. At the same time, there has been a shift from direct equities to the SIP (systematic investment plan) route of mutual funds," said B Gopkumar, head of broking, Kotak Securities.
As of February equity mutual funds have seen 11-straight months of inflows of about Rs 61,000 crore. The activity ratio in 2007-08 was about 30-40%, industry officials said. Brokers continue to believe that the activity ratio will be back to its historic highs in the next one-two year period.
"But what we have observed in the past is that first retail participates through the SIP route and then goes to direct equities. Basically, once their SIP returns improve, they get the confidence to come back into direct equities," said Gopkumar.
Between April 2014 and February 2015, the equity markets have returned over 31% in a rally that has seen sectors across the board participating at one time or another. But volatility too has been higher, analysts said.
"Even though this is not the best participation that mutual funds have seen, mutual funds have seen a lot of interest from investors in the last one-year period. Also, have come to realise that equity investment requires a certain amount of expertise and that outsourcing this to a fund manager would be better than managing it yourself," said Vineet Arora, executive vice president, ICICI Securities.
Wealth managers believe that the inflow that equity mutual funds have seen so far will continue to rise going forward as investors look for more long-term gains.
Further, many of the equity mutual funds have outperformed their benchmark indices. According to online mutual fund tracker, Value Research, in the last one-year period, different equity mutual fund categories have given returns of anywhere between 32-80%.
"Many of the MFs have done better than individual portfolios which is why we believe that additional inflows that we have seen so far are here to stay.
Investors are now coming into MFs with a long-term perspective which shows increasing confidence in the product category," said Arun Gopalan, vice president (research), Systematix Shares & Stocks.
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