IPOs, Stock Gains brings back Retail Investors and FPIs

Retail investors were waiting on the sidelines and now are trooping back to the stock market. It shows in the various data related to the equities.

The two depositories, NSDL and CDSL, have together added over 20 lakh accounts in 2015-16. This is the highest incremental growth in five years and has taken the entire Demat accounts of the two depositories to 253.6 lakh in March 2016.

Since April, another 11.4 lakh accounts have been added, which is a lot higher than the nine lakh added in the same period last year.

The primary market has also received a push due to the retail participation. Most of the recent IPOs saw the retail portion over-subscribed several times.

For example, the Retail Investor portion of the ICICI Prudential offer was subscribed 12.2 times. In the IPO of Endurance Technologies, retail investors bade for the issue quite aggressively. The investor category had bid for about 18.32 lackhs shares, which was 21 per cent of the total issue size. Small investors also made a beeline for the issues of RBL Bank was also subscribed 76% of the quota limit by the Retail Investors in the first few hours. Advanced Enzyme Technologies retail quota was subscribed 1.8 times over the mark. Mahanagar Gas, Ujjivan Financial Services, Thyrocare Technologies and Equitas IPO also witnessed enthusiastic subscriptions from the retail investors.

Retail holdings in stocks in the secondary market have also increased considerably. The share of retail holding in stocks forming the Nifty 50 was 8.09 per cent in the June 2016 quarter, which was an increase from 7.6 per cent in March 2015, and 7.3 per cent in March 2014.

Data from Association of Mutual Funds in India also indicate a jump in mutual fund investor accounts in the last one year.

The numbers floated by the RBI, as well, confirms the trend that Indian households are getting more comfortable investing in stocks. The Net Financial Savings of households in shares and debentures in the year 2015-16 was 0.7 per cent of Gross National Disposable Income, showing a rise from 0.4 per cent in 2014-15 and 2013-14.

Quality IPOs

The dash to open Demat accounts is mostly because of the revival in the IPO market. In 2015-16, a total of 74 companies made their first appearance in the capital market, the highest in five years. Further, since April, more than 25 new issues have made the debut in the market. Experts have stated that listing gains could also have attracted investors. RBL Bank and Advance Enzyme Technologies rallied over 20 per cent on debut. Thyrocare Technologies listed at 28.5 per cent above its issue price.

This time, compared with 2007-08, the numbers of IPOs were less, but most of them have been fundamentally strong because of the SEBI’s new stringent regulations. Also, this time, the issues were supported by PE or VC funds. What has also attracted retail investors to IPOs is the Application Supported by Blocked Amount mandate. SEBI made ASBA mandatory for retail investors. So, the applicant’s money is debited from his account only after he receives the allotment of shares. And as the time allowed for listing has been reduced to six days from twelve, investors are happy.

Secondary Market Surge:

The surge in stock prices in the secondary market is another reason for the increased retail interest. The equity bellwether index, Nifty50 has rallied around 25 per cent from its lows in February with selected stocks in the mid- and small-cap segments giving much higher returns.

Investors have also taken the mutual fund direction to invest in stocks, and this is proved by the additions to mutual fund folios.

The number of investor accounts in the Mutual Fund folios, which had dropped to 3.95 crores in September 2014, has improved since then. It had reached 4.77 crores in March 2016 and 4.89 crores in June 2016. Almost 95 per cent of the Mutual Fund accounts are owned by the Retail Investors.

FPIs Bullish on Equity Market:

Boosted by the RBI rate cut and positive global cues, Foreign Investors have unloaded around Rs 1,445 crore into the stock markets in the first week of the ongoing month, carrying on their bullish stance of the past few months.

The Equity Markets have been observing net inflow by Foreign Portfolio Investors, i.e. the FPIs, since March. Previous to that, stock markets saw an outflow of Rs 16,648 crore in the two previous months of January and February.

Market experts ascribed the inflow to RBI’s surprise decision to cut the policy rate by 0.25 per cent to 6.25 per cent. Also, increasing sales numbers from automakers is a sign of recovery in discretionary spending. Also, the Rupee holding higher against the dollar and no further flare-up on the geopolitical front added fuel to the rally. A global rebound on easing qualms about future of German giant Deutsche Bank and a firming oil price provided a perfect setting.

The market had been happy over the surprise cut by RBI. It was a breather after the bounce back post the geo-political issue. Given the neutral commentary from RBI, there is limited room for the further cut in the near term.

According to depositors’ data, Net Investment by Foreign Portfolio Investors stood at Rs 1,445 crore in equities during October 3-7. However, they had withdrawn a net sum of Rs 3,690 crore from the debt markets, taking the total net inflow to Rs 2,245 crore.

The latest inflow has taken Foreign Portfolio Investor’s investment tally in equities to Rs 52,738 crore so far this year. While, the debt markets have witnessed an outflow of Rs 1,249 crore, resulting in a net inflow of Rs 51,489 crore. In a nutshell, Equity market has the attention of both the Retail Investors and Foreign Portfolio Investors. There are many factors that are driving the rally in the market but the IPO of some fundamentally strong companies, stock gains, RBI rate cut and peace on the geographical front are the key factors. It will be worth watching that for how long the Equity market holds the limelight.