Why are retail investors missing?

According to stock market lore at the over-a-century-old Bombay Stock Exchange, when the index is robust on muhurat trading day, the rest of the year can expect to see a robust stock market. Of course, this lore went for a toss in 2008-09, but that was due to the malefic stars that affected the economies of the developed world, and which saw the stock markets round the world plunge. India was no exception. But times have changed since then, hopefully. Samvat 2067, the trading year for the Bombay Stock Exchange, began with a bang at muhurat trading on Friday. It created a new closing high of 21,005, up 111 points. This was its second biggest gain since muhurat day 2000.
It is a well known fact that the surge in the stock indices has always been led primarily by foreign institutional investors. Since the beginning of this year they have pumped in way above `1 lakh crore. And for the market to sustain this momentum it will need an average investment of over `1,000 crore daily.
The hope lies with the retail investors who hardly participated in the market when the Sensex went up from 8,500 to nearly 21,000. There are several reasons for them staying away, but both the Securities and Exchange Board of India (Sebi) and the ministry of company affairs would do well to look into how retail investors can be brought back. A study has show that between 2007 and June 2010 their numbers have fallen. Only two per cent of household savings are said to be in equity. This figure has barely changed over the years. One does not take into account those who sold their stocks for profits they then invested in luxury items from homes to cars. But there are lakhs of others who have burnt their fingers in the past for no fault of theirs. There is no safety net when investors are cheated, as in the most recent case — Satyam under the disgraced promoter Ramalinga Raju. There is only talk so far of investors being given the facility of filing class action suits, but when this will see the light of day is a million dollar question. About 1,600 companies have been suspended on the BSE and investors have estimated to have lost nearly `50,000 crore. They have not got a paisa back. There is havoc being played in the derivative segment which is more like a casino. But for some inexplicable reason Sebi is reluctant, dilly-dallying for several years over introducing a system of physical settlement in the derivatives segment. This was recommended even by the joint parliamentary committee set up after the Ketan Parekh scam of 2001-02. The government and the ministry of company affairs should also find out why the Union labour ministry does not want provident and pension fund money to go to the stock market. If not for the sake of the investors, at least the views of the labour ministry can be treated seriously to make the equity markets safer. There is one silver lining — the Coal India IPO, which has brought in a host of new investors who made a minimum of `10,000 each on the IPO on listing day. They will also get refunds and may reinvest some of this in the market. There are several other public sector IPOs in the pipeline that could bring in new investors. But if they are not to be singed by malpractice, the sooner the government looks into this the better for everyone concerned.

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