The 'in' thing: Yes, the equity market is attracting more and more investors

Yes, retail investors are back in the equity market. But it's still just an emerging trend. Says Alok Vajpeyi, Managing Director, Dawnay Day AV Financial: "The numbers are increasing by the day. Individuals, several of them from middle-class households, are entering the market directly, through mutual funds (MFs) and through portfolio management schemes (PMS)." Market intermediaries feel changing lifestyles and attitudes are responsible for this. And rising exposure levels mean more people are now aware that equities give superior returns over the long term. The decline of fixed deposits as a viable investment option has also accelerated the trend.

"Unlike in the past, professionals like doctors and lawyers do not consider investing in stocks to be at par with playing satta (gambling)," says Dinesh Thakker, Chairman & Managing Director, Angel Broking, a leading broking and research firm. Banks and other investment counsellors, too, urge investors to allocate higher amounts to equities. This is clearly reflected in the amount of money being mobilised by the equity schemes of various MFs. Retail investors, for example, contributed Rs 700 crore out of Sundaram Rural India Fund's corpus of Rs 1,220 crore. The average ticket size for retail investors: Rs 45,000; and the number of retail applications: 1.6 lakh. Interestingly, less than eight months ago, when Sundaram Capex Fund mopped up Rs 625 crore, the average ticket size for retail investors was Rs 70,000 across an investor base of 55,000. This is a secular trend covering almost every new fund offer over the last six months. The clear indication: retail participation has increased. Says Rajesh Bhojani, President (Sales), UTI AMC: "But investors have learnt from past experience and are not being greedy. The industry already has over one million systematic investment plan (sip) accounts." Implication: the retail investor has returned.

Several retail investors have also invested in the primary market and some, with more money than the rest, have even entered the market through PMS. Securities and Exchange Board of India Chairman M. Damodaran also acknowledges this. "You just have to look at the pavements outside the Bombay Stock Exchange. They're swarming with people selling IPO and NFO forms. This clearly shows that retail money is flowing into the market," he says.

Adds Thakker: "My estimate is that retail investors have pumped in about Rs 17,500-18,000 crore into equities so far this year. Last year, the figure was around Rs 8,000 crore."

Rakesh Jhunjhunwala, CEO, Rare Enterprises, thinks the Great Indian Middle Class is playing catch-up with the West. "Local savings have just started flowing into equities. By 2010, retail investment in equities could easily touch $40 billion (Rs 1,80,000 crore) a year," he says. Today, retail money accounts for barely 2 per cent of total investments in equities compared to 10-20 per cent in developed markets like the US. However, with retail participation slowly increasing in the equities market, experts feel that this will rise to 10 per cent by 2010.

Empirical evidence from all over the world suggests that retail investors are invariably the last to enter the market and get their fingers burnt in the process. Will history repeat itself? "If they adopt a disciplined and systematic approach to investing, they can still be winners," says Thakker. That's because analysts are confident that the Indian economy has entered a long-term growth phase which should keep the bulls in business for a few more years. Maybe, but if you're retail investor, you'll do well to tread with caution.

INSTAN TIP
The fortnight's burning question.

Congress President Sonia Gandhi has written to Prime Minister Manmohan Singh saying FTAs are hurting the interests of Indian farmers. Are they?

No, but... S. Sivakumar, CEO, Agri Business, ITC Ltd

As long as the government exercises discretion while preparing negative lists and quantitative restrictions, such agreements will not hurt the interests of Indian farmers.

No. Rajiv Kumar, Director and CEO, ICRIER

The interests of Indian farmers can be protected by having a negative list of imports and by fine-tuning the tariff regime. Their interests are hurt more by the absence of agricultural reforms and the lack of agricultural infrastructure. Any talk of limiting imports is more political than real.

No. Subir Gokarn, Chief Economist, CRISIL

A few farmers definitely suffer but many more benefit from substantially from such agreements. We should provide a safety net for those farmers who are affected.

-Compiled by Shaleen Agrawal

Q&A
"We Will Offer Total Travel Solutions"

The roaming gnome has plans for India. Travelocity, the world's largest online travel solutions company, is setting up base in Mumbai. Its Asian subsidiary, the Singapore-based Zuji, will soon launch Travelocity's India site. Zuji CEO Scott Blume was in Delhi recently and spoke to Pallavi Srivastava of BT about his company's plans for India. Excerpts:

Why are you entering India now?

We are here because of the growing number of internet users (in this country), the rising popularity of e-ticketing and e-booking and the phenomenal growth in both outbound and inbound travel. The numbers are quite substantial here.

How is Travelocity different from other online travel portals in India?

We will provide a 24-hour online booking service with immediate confirmation and a ticket-delivery-at-door service. As a comprehensive travel solutions company, we do the research and present the customer with all the options available. Our research shows that no other online travel house works like this in India.

What services will you offer?

We will tie up with hotels and airlines and offer customers a comprehensive package of services covering the entire spectrum of travel solutions. We will also offer all modes of transport: rail, road, waterways and flights.

Where do you see yourself in one year?

I can't talk about revenue growth, but we expect to have a base of 100,000 users in one year.