What equity cult?

The Indian stock markets delivered spectacular returns in the last two years.

The Indian stock markets delivered spectacular returns in the last two years and the 30-share benchmark,the Sensex,was the best performer among the worlds 10 biggest markets last year. This has created a lot of interest amongst retail investors on the investment opportunities in the equity markets and the growth potential in the long-run as equities have always outperformed other asset classes over a longer period.

An Indian Equity Investors Survey carried out by MCX-SX found there is a great awareness level among retail investors on equity and various equity-linked instruments,like mutual funds and Ulips. But investors still prefer to invest their savings in fixed deposits,insurance and precious metals like gold and silver. Investors feels that there is a lack of depth in the Indian markets as 57.5 of the total trading is done on the Bombay Stock Exchange and the National Stock

Exchange alone. In 2001-02,there were 21 regional stock exchanges in the country apart from the two national exchanges. However,in 2008-09,the active exchanges had been reduced to only four. Moreover,over 80 of the turnover in the stock markets in the country is generated from 5 citiesDelhi,Mumbai,Ahmedabad,Rajkot and Jaipurindicating the untapped potential of retail investment in equities across the country and that the lack of access to markets is the major impediment for the growth of an equity culture in the country.

As retail investors still prefer to invest in IPOs,valuations will play an important role in drawing retail investors to the equity markets. Interestingly,the survey found that investors prefer to hold on to stocks for a longer time and sell when profit is realised. Of course,the lack of any guaranteed returns from equities and too many price fluctuations are the two most important barriers to investors not investing in equities directly.

Investors feel that there is a greater need for financial counselling on the ways to invest in equity markets and brokerage houses will have to take a lead to generate more retail investors awareness. Investors are willing to spend time on training programmes,provided they are done in their vicinity.

Off late,some mutual fund houses have started investor awareness programmes after the market regulator,Sebi,banned the entry load on mutual funds in September 2009 to develop a direct distribution model.