India's retail investors, accessing stock markets through the mutual fund (MF) route, have lost money-making opportunities in these five years of choppy markets, several data points indicate.
Despite a cry from fund managers and investment advisors to remain invested for a longer horizon, several retail investors have lacked the holding strength and have exited their investments, often even at losses. An analysis of returns made by equity funds shows investors would have at least doubled their investments in the past five years, even as the benchmark indices remained flat.
A majority of the investors, however, lacked the strength to average or even hold on to their investments when the Sensex declined to below 10,000 during 2009. On the other hand, they have been investing at times when the market has traded at rich valuations.
"A vast majority of investments in MFs have come in after the markets have gone up substantially and when markets are expensive. On the other hand, redemptions are more at lower P/Es (price to earnings ratios). Such an approach does not lead to good returns," says Prashant Jain, chief investment officer (CIO) at HDFC MF.
In the past five years, equity schemes have dominated the best-performing charts. The 10 schemes with the highest returns are from equity's stable. Every Rs 100 investment in funds into fast moving consumer goods would have seen a rise to Rs 400. The same amount in pharmaceuticals or information technology schemes would have got Rs 389 and Rs 332, respectively.
Jain says local investors' holdings in equities have been one of the lowest in recent years. Around 12 million equity folios have closed during the period between 2009 and 2014. During this period, fund managers have sold worth Rs 75,000 crore, a massive liquidation. Curiously, the selling has taken place when India's markets had been on a recovery path.
"The 20,000 mark for the Sensex was a big level in investors' mind for all these years. Whenever markets used to hover near about this, those who had been stuck since 2008 were first to redeem their units," says Akshay Gupta, chief executive officer (CEO) of Peerless MF.
The markets are again scaling new highs but there is no substantial inflow in equity schemes. Dhirendra Kumar, CEO, Value Research, says: "Investors will regret that they remained on the sidelines. It was a sharp rally and I do not think investors would come at this moment."
Another fund manager, when asked about re-entry of retail investors in a substantial way, quipped, "I think retail (investors) would come when the Sensex would be at 27,000, only to burn their hands once more."