MUMBAI: One of the biggest stories of the financial year gone by was the great migration of retail investors in the country from mutual funds to direct equity. Disheartened by mediocre returns from mutual funds and armed with zero-cost mobile trading applications, millions of retail and high net-worth investors chose to dip into direct equity investments.
The phenomenon resulted in the opening of over 10 million new dematerialised accounts being opened across broking platforms in the last 12 months and continuous outflow from equity mutual fund schemes since April.
Shyamsunder Bhat, Chief Investment Officer at Exide Life Insurance, believes that migration may reverse soon. “We might see a rotation of investments back from direct equity by retail investors into mutual funds and Ulips,” Bhat told ETMarkets.com in an interview.
“If retail investors perceive a higher level of risk associated with direct investments in individual stocks at levels which are much higher than those earlier during the year,” then they may seek safety that in diversification provided by mutual funds, he said.
For retail investors, making returns in the domestic stock market has been mostly a cakewalk in the past 12 months as the bull run driven by unprecedented levels of global liquidity and cheap borrowing costs lifted stock prices generously. Easy access to leverage, information and capital helped the so-called Robinhhood investors become a force to reckon with on Dalal Street.
Money managers, however, expect the easy ride to end in the coming years, as making returns becomes increasingly about stock-picking ability and macro business cycles than merely liquidity. As the ongoing bull market matures, fund managers will be in higher demand to create alpha.
Nifty50 delivered returns in excess of 70 per cent for the financial year gone by, as one in every two stocks on the BSE doubled investor money in the same period. In terms of ease of making money, the market conditions in the past 12 months were the second best in the history of Indian capital market, the first being 2019-10.
Another factor that may help Bhat’s prediction come true is the normalization of the economy. As vaccinations accelerate and large part of the population gets inoculated by the year-end, offices will reopen to welcome employees back.
The re-opening of offices will act as a constraint on retail investors, who had so far been utilizing the extra hours due to work from home on their trading apps.
Further, as the economy normalises and options rise for individuals to spend their money on, retail investors might choose to let professional money managers handle their affairs.
“We do expect that while the equity market consolidates at its current levels with sectoral rotation, accompanied by a (gradual but considerable) correction in some individual stocks over the next few months, we could see this happen,” Bhat said.