The Indian equity market is becoming like the Wimbledon – happens in England, but for foreigners. Similar our equity markets are based on Indian stocks (what we think as Indian like Hdfc, Icici, …) but largely a play by the FII.

Let us look at what happened to the Retail Indian Investor:

a. Invested in Real Estate: The so called average Indian investor is now so happy with a 80% Real estate, 10% gold and 10% bank fixed deposit asset allocation ratio, that he is NOT considering equity investments.

b. Redeeming his Mutual Fund Investments: Most investors are busy redeeming their equity investments as the Index keeps going up. At 22,000 index chances are there will be far more redemptions than at 21000.

c. Hit by inflation: Those who have not lost their jobs have been hit by inflation. This has reduced their capacity to invest.

Really cannot think of too many other reasons for the exit of the retail investor. Those who have some surplus CONTINUE to invest in ULIPs, classic endowment plans, real estate plots, bank fixed deposits, …etc.

So the Indian equity markets are left with only the FII (the Indian mutual funds, ulips, etc. are now reducing in size), LIC (traditional plans concentrate on debt much more than equity, but still LIC is a big investor).

Younger investors are actively discouraged by their parents – so they stay away from the markets.

However I do not blame the average investor. The terribly poor quality of corporate governance, the terrible anti investor stand of the MF and Life Insurance industry (actively helped by their regulator) are not really inviting people to invest.

RIP Indian Retail Investor. Not too many tears will be shed for you. Except of course by those people who are used to sucking your blood regularly.

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  1. One of the reasons is the sub-standard returns from MF due to churn and poor management as well as aggressive selling during the 2007-2009 period, the crash in mid-cap stocks, infra, etc. Fund managers by large do not have the capability of beating the market consistently even if they are smart. The same stock base. The acid test is to see if fund managers can put in significant money in their own funds. PPFAS is trying this. In short, folks have figures out that this was a scam, the sellers have disappeared. No more faith in the market intermediaries and no simple way of getting good and fair advice.

    Regards
    Ravi

  2. Pv – and that is something that retail investors have figured out that there is no accountability and also learning the hard truth – equity markets are risky and you can lose parts or all of your capital. In most markets, MF are the way to get in and stay invested. In India, MF for the most part have lost capital big time. I am surprised that SEBI want retail investors to come back in – don’t know why this is a key goal. The transparency of the the market infrastructure, process should make it easy to make a decision. This is lacking and most channels of information are not complete. TV is a marketing tool, magazines are limited, blogs are better, good financial advisors need to be found out, etc. All this make it easier to go back to FD, banks and even real estate.

  3. Retail investors stay away because markets are way away from the “fundamentals”. How will you expect a market to create all time high when inflation is the highest, growth forecast is poorer and rates are increased each time by RBI.

    When ever interest rates are increased, the market is going up each time. Mad FII buying and poor retailers look at stock market as gamble house for foreigners.

  4. “terrible anti investor stand of the MF and Life Insurance industry”

    Could not understand what you are referring to here ?

  5. Sir

    it’s easier and profitable (currently) and less humiliating to invest in real estate or any financial products than in mutual funds or markets. The regulator bring all the rules and over rules and additions for investing or redeeming. being an nri investor many times I have felt running away because of the new requirement each time I need to invest or redeem. over regulation is going to chase off the remaining few

  6. Recently I wanted to redeem of my MF-DY SIP portfolio. When I had submitted request, HDFC MF asked me to submit bank statements as proof of verification that funds are drawn from my account. This was a bit shocker to me because all my investments are done through net banking of the same HDFC bank.

    I live abroad and it was painful for me that I need to recoup bank statements from first SIP investments onwards. Being a privileged customer of the bank, I could download the bank statement of last 3 years and could furnish. As a result, my redemption amount got delayed by 3 days. I would have screwed up if I linked this payment to any urgent requirement such as admission fee or medical etc..

    But then wondered, if SIP would have continued for 10 years, I would have found difficulty in getting or downloading the statement. The redemption could have gone into tailspin and complex web costing me high price.

    Even while India is reeling under rupee depreciation and trying to attract flows from NRIs, let me reiterate that none of the equity investment rules for NRIs got simplified. On the top, they are harassed with arbitrary requirements.

    I am really scared to put my investments in India on any of the asset class except FDs.

  7. I go back to the public offer boom of 2007-09. Retail Investor lost >50% of capital in offers like Reliance Power, Indiabulls Power, JSW and others.

    People who lost such massive capital cannot even really consider coming back.

    Even today barring so called 20-30 index stocks, there is no movement in others.

  8. Retail investors have to blame themselves for their pain, They always enter at the wrong time, are FORCED to exit at low levels and they start abusing FIIs for all their follies. Markets reward only those who can invest in them regularly irrespective of the index levels. SIP returns for long standing funds in the 15 year and 10 year period are still good at around 20% & 15% respectively. This, despite the fact that the market hardly ran for the past 5 years. So, retail guys shd set right their perspective and then take a dive. If you invest in ULIPS and Endowments & expect a world, then you get no argument from me. And stop blaming FIIs, it is their money and they have every right to enter & exit as they want

  9. @Krish, it is really sad and surprising that you were put thru all that just for wanting to redeem your MF Units. Makes me question all my SIP investments and whether I’ll also be subject to such treatment when time comes to redeem my investments.
    I’m wondering whether it will help if you could complain to AMFI and see if they take any action against HDFC-MF for this behavior.
    If this is true in every case, all our long-term investments in MF are in jeopardy.
    Maybe the problem is with SIP, and large investments we should track by retaining a record of each MF purchase for posterity.
    If others have had such experiences, please update here…
    Thanks!

  10. The experience detailed by Krish above is due to anarchaic RBI rules courtesy his being an NRI. Domestic investors will not have any such problem in SIPs.

    Do not blame the equity market or HDFC Bank for that. Or maybe HDFC could have kept track and not asked their NRI investor to furnish details. But definitely not a fault of our equity markets. RBI s job is to make it easier for the govt to get funds. It is not thinking of the equity market.

  11. I did not complain to AMFI as I was not sure of resolution.

    I have two concerns. The same HDFC-MF did not ask the same for earlier investments. I was bit taken back when this new requirement is asked. I would have got no problem if this new requirement is made known to me prior starting my investment. But asking some thing new during redemption is unfair to investors.

    I understand these rules might not have been imposed by RBI. Because I was informed that only few fund houses are demanding such requirements. This what scares me. The rules are not same across the fund houses.

    When in doubt, investors should be given benefit of the doubt. Unfortunately it does not happen.

  12. My 2 cents:
    Regarding issues in redemptions, there may be issues even in other instruments, and not just MFs. e.g. Recently, I had to redeem my matured NSC, but as I had purchased the NSC from post office in some other city, I was asked to wait for atleast 1-2 months in order for the current city’s post office to get the NSCs verified from the issuing post office. On the contrary, I haven’t faced any issues in redeeming my MF money.

    As regards little retails investors’ participation in indian equity market, I agree with Subra and Shiv. It’s also because of the redemption pressures on MFs that they do not perform better than their benchmarks e.g. a good ELSS fund will have shown much better performance in its initial 3-4 years as there won’t be any redemption pressure during initial lockin period (consider Axis long term equity fund for example which has completed only fews yrs).

    Indian retail investors are happy getting 1 Lac life insurance endowment plan at 5000 premium, but find 50 Lac term plan at same cost useless, just because they won’t get their money back in term plan.

    Best regards.

  13. @Krish, Thanks for sharing your experience. Very very true, I too experienced similar issues with the same bank. Surprisingly for me it was conversion of NRO funds to NRE. It was a nightmare – really. No help from branch as well as the so called customer support (harsh communication that too having kept a sizable amount with them). As you rightly said from that day I am really scared to deal with these new generation banks and have virtually stopped dealing with them shifting my funds to couple of small local banks. I’ve to agree even though they don’t boast about ‘professional’ handling/one click and so on service-wise they are far far better.

    Regards,

  14. Subra,

    Retail investors are very much there but are waiting for another round of frenzy to start. We see this every time. Smart people are keeping their SIP’s alive.

    The share market has not kept pace with inflation and real returns are negative for quite some years now. It is hard to motivate investors with a few rupees, to invest in such a risky asset. I am sure those who have invested during these times, will get rewarded well. They should remember to get out in time before another down cycle starts.

    Regards

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