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Decoding retail investor behaviour
Our survey of 700 individual investors reiterates that Indians love
physical assets and equities is not the preferred option. However, nearly
80%+ of equity investors have more than 6m investment horizon and
would rather buy the dips and sell the rises – making it a partial
counterforce for FII. If Indian households were to revert to normalised
equity investment rate of 5% of incremental savings, equity inflows
would be US$20bn+. Initial signs are visible in 1HFY12 with the net retail
investment of US$3bn but meaningful investments unlikely in FY12 due
to the continued high bank deposit rates.
Why are retail investors important?
q Indian households have historically invested 5% of incremental savings in equity
markets. In FY09 and FY10 that number was nil – largely attributable to the
regulatory changes that cut the commissions of mutual fund and insurance agents.
q A potential normalisation can mean c.US$20bn of annual inflow into equities. With
bank deposit rates at c.10%, normalisation will take time, possible only in FY13.
q A partial reversal from FY10/FY11 trend has already happened and during 1HFY12
with retail investors investing c.US$3bn in Indian equities.
q Amidst this reversal of flows, we have done a detailed survey of 700+ retail
investors across 90 cities to gauge the retail investor sentiments. Only c.50% of
respondents are active in equity market. 60% are between 20-40 years of age
group and 60%+ are from Tier II/III cities in India.
Investments in equities is not a preferred option…
q The preference for Indian households towards physical assets (property and gold) is
well known. We estimate that the households have only about US$150bn worth in
equities. As against this, investment is gold at an estimated US$1trn or nearly 7x.
q When asked if given Rs1m, 61% preferred to invest in property or gold. Only 13%
would invest in equities.
q Equity investor community is largely new (maybe because young) to equity
markets and only half of our respondents who invest in equities have more than 5
years of experience. NSDL data shows that 1/3rd of the current 12m demat
accounts in the country are created over past 5 years.
…but investors exhibit ‘buy on dip’ bias
q 32% of retail we surveyed said that they would invest in the equity if the market
falls +10% from current level, 36% also admitted that they would trim exposure to
equity if market rises by 10%. Bulk of the rest would maintain status quo.
q 70% of the investors have 1+ year of investor horizon and c.60% of investors
monitor their portfolios with a frequency of more than 1 month, implying the longterm
nature of the investments.
Use of online platforms popular; direct equity preferred option
q Of those who invest in equities, 60%+ prefer direct purchase of equity shares visà -
vis taking exposure through MFs or insurance (ULIPs). We estimate that 60% of
the households holdings of the equities is direct stock ownership.
q 1/3rd of respondents across age groups prefer internet based trading platforms.
Even for Tier III cities +25% of respondents prefers this route of investment
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Decoding retail investor behaviour
Our survey of 700 individual investors reiterates that Indians love
physical assets and equities is not the preferred option. However, nearly
80%+ of equity investors have more than 6m investment horizon and
would rather buy the dips and sell the rises – making it a partial
counterforce for FII. If Indian households were to revert to normalised
equity investment rate of 5% of incremental savings, equity inflows
would be US$20bn+. Initial signs are visible in 1HFY12 with the net retail
investment of US$3bn but meaningful investments unlikely in FY12 due
to the continued high bank deposit rates.
Why are retail investors important?
q Indian households have historically invested 5% of incremental savings in equity
markets. In FY09 and FY10 that number was nil – largely attributable to the
regulatory changes that cut the commissions of mutual fund and insurance agents.
q A potential normalisation can mean c.US$20bn of annual inflow into equities. With
bank deposit rates at c.10%, normalisation will take time, possible only in FY13.
q A partial reversal from FY10/FY11 trend has already happened and during 1HFY12
with retail investors investing c.US$3bn in Indian equities.
q Amidst this reversal of flows, we have done a detailed survey of 700+ retail
investors across 90 cities to gauge the retail investor sentiments. Only c.50% of
respondents are active in equity market. 60% are between 20-40 years of age
group and 60%+ are from Tier II/III cities in India.
Investments in equities is not a preferred option…
q The preference for Indian households towards physical assets (property and gold) is
well known. We estimate that the households have only about US$150bn worth in
equities. As against this, investment is gold at an estimated US$1trn or nearly 7x.
q When asked if given Rs1m, 61% preferred to invest in property or gold. Only 13%
would invest in equities.
q Equity investor community is largely new (maybe because young) to equity
markets and only half of our respondents who invest in equities have more than 5
years of experience. NSDL data shows that 1/3rd of the current 12m demat
accounts in the country are created over past 5 years.
…but investors exhibit ‘buy on dip’ bias
q 32% of retail we surveyed said that they would invest in the equity if the market
falls +10% from current level, 36% also admitted that they would trim exposure to
equity if market rises by 10%. Bulk of the rest would maintain status quo.
q 70% of the investors have 1+ year of investor horizon and c.60% of investors
monitor their portfolios with a frequency of more than 1 month, implying the longterm
nature of the investments.
Use of online platforms popular; direct equity preferred option
q Of those who invest in equities, 60%+ prefer direct purchase of equity shares visà -
vis taking exposure through MFs or insurance (ULIPs). We estimate that 60% of
the households holdings of the equities is direct stock ownership.
q 1/3rd of respondents across age groups prefer internet based trading platforms.
Even for Tier III cities +25% of respondents prefers this route of investment
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