Appetite for investment: Other cities take a big SIP of equity market

Small-town investors are increasingly jumping into the stock market bandwagon either by directly investing or buying equity mutual funds.

Small-town investors are increasingly jumping into the stock market bandwagon either by directly investing or buying equity mutual funds. Improved income levels,coupled with a buoyant stock market,are bringing these new set of equity investors located in tier II and tier III cities and other far-flung areas,increasingly under the equity fold.

Securities and Exchange Board of India (Sebi) data shows that the share of other cities essentially areas that are not among the top twenty cities in terms of NSE cash turnover has increased to 8.1 per cent during July-Aug 2010-11 as compared to 7.4 per cent in 2009-10 and 5.7 per cent in 2008-09.

Thanks to a strong rally in the secondary market,there is an increased awareness and appetite among people to invest in the equity market, said Mayank Shah,managing director,Anagram Stock Broking adding that towns like Jamnagar,Gandhidam (Gujarat),Akola,Kolapur (Maharashtra) and Hubli (Karnataka) are witnessing a significant increase in trading volumes in recent times.

Even indirect investments into equity MFs are fast catching fancy. According to data provided by CAMS,a leading MF registrar,in Aug 2010,around 2,28,000 equity SIP (Systematic Investment Plan) accounts were opened in non-metros and other towns,compared to 95,000 in metros. SIP numbers have doubled in smaller towns as compared to March 2010 levels.

SIPs refer to monthly mode of investing,which are essentially done to average unit cost in a volatile market and these accounts are not only coming from Kanpur,Bhopal and Amritsar but also from semi-urban areas like Durgapur,Jabalpur,Nagpur,Jammu and Raipur.

PSBs have started aggressively selling MFs in semi-urban,rural areas, said Anand Shah,head of equities at Canara Robeco Mutual Fund. For the MF industry,which has been facing continuous redemption pressure,these SIP investments from smaller towns have actually come as a good cushioning.

As far as direct equity investments are concerned,bulk of the trading volume on both the exchanges still comes from Mumbai (74 per cent for BSE and 58 per cent for NSE). But,smaller towns have gained market share at the cost of other major cities like Delhi,Kolkata and Chennai,which have have seen a significant loss of market share.

Story continues below this ad

We are aiming to bring in more investors from tier II and III cities through increased awareness programmes as yields(margins) are significantly higher compared to larger cities, said C J George,MD,Geojit BNP Paribas Financial Services Ltd. According to experts,there is almost a difference of close to 50 per cent in yields generated from major cities as compared to its smaller counterparts.

While the yields in smaller cities are around 0.06 per cent,it is just 0.04 per cent in larger cities because of increased competition and lower brokerages. Margins are also better since these small town investors usually trade in low volume,which in effect increases the brokerage cost per transaction amount. Geojit NP Paribas is planning to make its presence felt in interior regions like Gadag and Bhatkal (Karnataka),Moonupeediga,Piravum,Pattambi and Vadakancheri (Kerala) and similar far flung areas in Tamil Nadu.