Without a dramatic shift in policy-making, a dwindling retail investor population will be the trend of the decade
India has entered the new decade brimming with all the confidence that comes from being the world’s second-fastest-growing economy and a preferred destination for global business and portfolio investment. The world, correctly, sees us as a giant potential market, given our large population and low per capita consumption base in almost everything—food, soft drinks, liquor, furnishings, clothes, accessories, automobiles, white goods or spending on travel and holidays. We also need better and more roads and public transport, airports, ports, energy, etc.
All this spells business opportunities for multinationals and investment opportunities for portfolio investors. That is why one brokerage firm began the year by predicting a ‘tsunami of money’ waiting to enter the Indian market. The financial markets anticipate a resumption of the powerful bull run that ended with the global financial crisis of 2008 and scores of companies are all set to raise funds through initial public offerings (IPOs). The moot question is: Will Indian retail investors get to benefit from this expected rally?
The paradox is that the retail investor continues to become more disenchanted everyday. Our investor population has already dived from around 20 million to just about eight million. The trend in almost all recent IPOs indicates that they are disgusted with the high valuations and have shunned the primary market. So restoring the confidence of retail investors and growing the investor base ought to be the challenge for the decade. But the opposite is more likely to happen—the retail investor may actually become extinct. Already, mutual funds (MFs), portfolio managers and even insurance agents are more focused on tapping corporate treasuries and high net worth individuals rather than retail investors. As regulators continue to tinker with loads and fees, brokers as well as MFs will be even less keen to splurge money on a shrinking retail investor base. And without a dramatic shift in policy-making or serious private initiatives to increase financial literacy, a dwindling retail investor population will be the trend of the decade.