RALLY IN EQUITY MARKETS AND RETAIL PARTICIPATION

India’s economy needs a strong participation from individual investors as this brings stability and depth to the equity markets. Higher retail participation leads to more trading and better price discovery; moreover, a wider base always helps in reducing sharp swings. In order to achieve these objectives, the SEBI has mandated a minimum 25 per cent public shareholding for companies which are listed or seeking to get listed.

The financial crises of 2008 had a deep impact on retail investors and participation in equity market slipped to an extremely low level. Now, with the passage of time it would be interesting to see if there is a revival of confidence in parking money in the equity markets. Retail investors are generally unable to take advantage of the Bull Run as they typically do not research well before investing and enter the market when it has peaked. Retail investors also do not have strong financial muscle and usually sell a higher performing stock and hold on to the loss-making stock, thereby eroding whatever little profit was made. The Indian IPO market is also somewhat responsible for the loss of confidence of the retail investor though the regulator does takes necessary steps from time to time for boosting the investors’ confidence.

Sensex, which represents 30 stocks, has given a compounded return of about 17 per cent since its inception in 1978-79. If one has to compare investing in shares versus fixed deposit, Rs 100 invested in Sensex would be worth Rs 27,828 and if the same amount was invested in a bank fixed deposit earning at the rate of 9 per cent, after 36 years the value of the deposit would be worth Rs 2,225. Investing in the share market needs some amount of risk-taking ability and some skill on value picking and sector selection.

The average increase in share price for all BSE 500 companies is 31 per cent and this indicates that some industries within the 500 companies have outperformed some of the companies listed on the BSE Sensex. We used the industry classification benchmark to regroup all the 500 companies for a consolidated view on industry and the findings are amazing, to say the least.Healthcare, which consists of 39 companies, has outperformed all the other sectors with around 15 companies from this segment having generated a phenomenal return of more than 100 per cent in one year. Unfortunately the data on retail shareholding is disappointing as over the year retail participation in healthcare has decreased by a mere 1 per cent. The abnormal increase of share prices in this sector is attributed to merger and acquisition activities (Sun Pharma and Ranbaxy), government initiatives like India Universal Health Plan, National Heath Assurance Mission, increase in medical tourism, greater awareness about healthcare supported by a rise in the income level, large number of drugs coming off patent and thus benefiting bulk drug exporters, rise in abbreviated new drug applications (ANDAs), approvals by USFDA, etc.

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Some of the major gainers whose prices have appreciated by more than 100 per cent include Ajanta Pharma, Suven Life Sciences, Natco Pharma, Shasun Pharma, Marksans Pharma, Sun Pharma, Strides Arcolab, Wockhardt, Indoco Remedies, Shilpa Medicare, Abbott India, Granules India, Alembic Pharmaceuticals, AurobindoPharma and Cadila Healthcare.

Utilities and basic material are the two sectors indicating higher increase in retail participation. Unfortunately, for utilities this has been a bad year and there is a 20 per cent decrease in share prices. The share prices of companies like Jaiprakash Power Ventures, GMR Infrastructure, Lanco Infratech, KSK Energy and GVK Power have reduced to half the prices prevailing a year ago. There is a 6 per cent increase in retail participation in utilities which had great potential to appreciate but due to problems of under recoveries, continued delay in approvals and environmental clearances, issues related to coal and gas availability, etc. has been unable to perform as expected. In fact, this sector performed the worst.

The consumer goods sector generated annual return of 55 per cent, and a significant increase in retail participation of 4 per cent. Increase in sales of companies in this segment indicates higher consumer confidence. Moreover, an increase in investment in this sector signifies that retail investors are confident about this sector’s growth story. Some of the initiatives like relaxation in license rule, approval of 51 per cent FDI in multi-brand and 100 per cent in single brand, higher income levels, etc. are some of the drivers. Companies where share prices have increased by more than 100 per cent are Hitachi Home & Life Solutions (India) Ltd., Kitex Garments, PC Jewellers, CCL Products (India), Britannia Industries, Symphony, KRBL, Whirlpool of India, J K Tyre & Industries, Asahi India Glass, Page Industries, Amtek India, Emami, Gillette India, Wabco India, Bajaj and Sundaram Fasteners.

Non-promoter individual shares on an average have shown an increase of about 2 per cent between 2014 and 2015, thus signalling positive sentiment for revival of confidence in the equity markets.