A multitude of data highlights that the participation of non
institutional investors (and/or traders) in the Indian equity market has
increased significantly in past few months. Many market observers have
commented that it may in fact be a global phenomenon. Since, I do not have
access to adequate authentic information about the global equity markets; I
would restrict myself to Indian markets here.
- As per the data available till last week, the share of non institutional volume on NSE has increased from 44.75% in February to 74.56% in July. In this period, the average daily market volume has increased from Rs51227cr to Rs59844; whereas the non institutional daily average volumes has almost doubled from Rs229bn to Rs446bn. This is unprecedented and surpasses both bubble markets (1999-2000 and 2007-2008).
- Unlike the previous two episodes of bubble formation in markets, this rise in non institutional participation has coincided with sharp fall in the flows to mutual funds. Net flows into equity mutual funds tumbled 95% in June from the previous month, marking the third month of consecutive decline in the flows into equity mutual funds.
- In this period the number of non institutional account with brokerages have increased materially. The largest discount brokerage in India recorded 23% rise in number of active clients in 1QFY21 period.
My enqiry indicates that the reasons for this trends are as follows:
(a) Dismal performance of asset
managers (mutual funds as well as PMS). Most fund managers have disappointed
the investors who were given high hopes through aggressive "Mutual Fund
Sahi Hai" campaign. There have been many instances of impropriety and
unethical practices, especially in case of PMS. This might have led the
investors to take the things in their own hand.
(b) The socio-economic lock
down due to outbreak of COVID-19 has rendered many people jobless. Besides many
businesses have been working at zero or sub optimal capacity reducing the
working capital requirement materially. Many of the jobless individuals and
idle businessmen with cash may have started trading in equities in order to
generate some income.
(c) Many young
professionals who have been told to work from home, may have found spare time,
which they are utilizing in trading in stocks.
The question is whether this trend is sustainable?
In my view, this trend is not sustainable. Much of this will
reverse once the economy normalizes and people get to their routine work.
Insofar as the conduct and performances of asset managers are concerned, the
regulator might have a lot of work to do there, before the investors'
confidence is restored.
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