Modi rally draws retail investors

Retail investors are hitching a ride on the ‘Modi wave’ in an attempt to make a comeback to the equity markets. 

The sharp rally in the stock market following the strong victory of the Bharatiya Janata Party in the Lok Sabha elections is seeing a boost in retail participation.

“Since Friday (election results day), we have seen an increase in the number of inactive clients who have returned to trade in their accounts.

. . .

 “It is an almost 100 per cent jump compared to what we have been seeing in the past three years,” said C J George, managing director, Geojit BNP Paribas Financial Services.

The stock market has been on an uptrend since September 2013, when Narendra Modi was selected as the BJP’s prime ministerial candidate.

The rally had already had a positive impact on retail participation.

Market players say last week’s election outcome will provide a fillip.

“We are seeing inquiries from many of our old clients who had stopped trading altogether.

“They want to re-activate their trading accounts.

. . .

“The uncertainty on the political front is not there any more and investors are eager to ride the fresh bull-wave,” said K Sandeep Nayak, executive director and chief executive, Centrum Broking.

Re-activation of dormant or inactive demat accounts has also boosted the retail trading volumes in stock exchanges.

“Volumes in the cash market have almost doubled since the election results came out. “This has also led to a rise in brokerages, which have risen by almost twice the amount seen in the previous years,” said Nayak.

Brokers say the activity so far is restricted to existing clients but market conditions are ripe for entry of first-time investors, too.

. . .

Experts said if the market shows a secular uptrend, it will give comfort to a lot of new and existing investors to trade directly in equities.

Heightened volatility and a sharp fall in the market after the 2008 financial crisis had dismayed retail investors.

They were discouraged from participating, directly or indirectly through mutual funds, in the equity markets.

Brokers said some investors could only be looking at booking profits following the sharp run-up seen in stocks in the  infrastructure, power and real estate space, which led the rally in 2008.

Brokers particularly point out to the data on May 16 when retail were net sellers for Rs 739 crore (Rs 7.39 billion), the third-highest net selling seen by this category so far this year.

. . .

“We saw massive liquidation and restructuring of portfolios. Basically investors who were saddled with the junk of the previous rally are a relieved lot,” said Rahul Rege, business head, retail, Emkay Global Financial Services.

While many are hailing the return of the retail investors, others are awaiting more signs before jumping the gun.

“We are yet see significant incremental flows from retail participants,” said a broker.

They said investors, ‘scarred from the carnage’ seen in the past five years, were still wary of equities as an asset class.

“The retail investor is going to be extremely cautious this time.

. . .

“At first, we thought investors would come back once the Nifty hits 7,000.

“Now, it looks like it mighty need to hit 8,000 before these investors actually start to come back,” said Rege.

Return of the retail investor

• Retail trading activity in equity markets almost doubles since election results day
• Rise led by pick-up in trading activity in inactive client accounts
• Investors mainly seen booking profits or churning existing portfolios
• Brokerages’ earnings double as volumes in the cash segment pick up
• Retail participation in equities had remained subdued for the past five years
• About 12 million retail mutual fund folios had been closed since 2009