A tweaked list

Although the Sensex plunged 290 points on Budget day, the important factor to consider now is price


Market reaction to the Union Budget has been severely negative. The Sensex plunged 290 points to settle at 18,861 on Budget day. From a high of over 20,200, the index has lost almost 1,400 points in more than a month. How does the broad decline affect our value picks? This can only...
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BSE Institute launches online certification course in Islamic Banking

The certification aims at improved financial inclusion through increased financial literacy and is designed for professionals who have an interest in the financial sector

BSE Institute has joined hands with Taqwaa Advisory & Shariah Investment Solutions (TASIS) to launch an online certification on “Islamic Banking, Finance & Capital Market”. 


Islamic Banking & Finance is fast emerging as a specialized area of finance. It has already made its presence in over 75 countries. The assets under Islamic finance have reached close to $1.5 trillion.


To address  the  need  of  this  industry  BSE  Institute  and TASIS have conducted  workshops  in  the  past  and  have now decided to launch a full online certification. The certification aims at improved financial inclusion through increased financial literacy. It also aims at improving the employability of our youth who want to make a career in overseas financial markets.


The certification is designed for professionals who have an interest in the financial sector, i.e. banking, insurance, investment and the capital market.  It will be useful for students with a background in commerce, economics and management, a release from BSE Institute said.


What is driving retail investors away from the equity market?

There is no denying the fact investments in equity is a must for wealth creation but if the performance of the stock market continues to be as pathetic as it has been in the recent years, retail investors will continue to keep away from markets

For retail investors, the experience of investing in the stock market is getting bitter with every passing day. Both the leading market indices in India, Sensex and Nifty, have failed to show a real growth during the last five years. In 2008, the Sensex touched its all-time high of 21,200 odd levels, which has not been breached even after more than five years. This effectively means that passive investors would have generated a negative return during all these years. It is important to note here that the Dow Jones has already crossed the all-time high level recently in spite of the US economy being in trouble continuously. This is completely in contrast to the Indian economy where the worst-ever growth has not been more than 5% in a quarter. As per the latest press release of AMFI (Association of Mutual Funds in India), there has been a net outflow from equity mutual funds for the ninth consecutive month. The number of demat accounts have stopped growing and even if there is some growth, those are fuelled by increase in the number of accounts opened for investments in commodities and schemes such RGESS (Rajiv Gandhi Equity Savings Scheme) for first time investors. India continues to have a poor share of total investment made by households in equities. Let us look at some of the factors that are driving retail investors from equity investment:

High Volatility in equities: The equity market in India is extremely volatile. There is no doubt that equity markets across the world are volatile but India has a higher level of volatility. Let us look at volatility of some of the leading indices across the world. Barring DAX, all other indices have shown a lower volatility compared to the Nifty. But more important than volatility, what is significant is the capability of investors to absorb volatility. Small investors have limited ability to absorb volatility.





 S&P 500































































It is also important to highlight the Economic Survey presented in the Parliament last month which says that there has been a consistent decline in the participation of investors in the equity market. The survey says, “Shares and debentures accounted for 8.3% of total financial savings in the1980s; their share increased to nearly 13% in the 1990s before declining to 4.8% in the 2000s. The reasons for such a trend could be the behaviour of share prices, as reflected by the Bombay Stock Exchange (BSE) Sensex, and are depicted in the following table. 


The sharp increase in the co-efficient of variation shows that there has been a substantial increase in the volatility in the equity market as co-the efficient of variation is a measure of volatility.

Issues related to mutual funds: Mutual funds have been one of the main culprits in driving retail investors away from the market. Mutual funds over a period of time floated schemes which have been completely lacking focus. When the market was on an upswing, these schemes sold like hot cakes but with market sliding, the hollowness of these schemes came to the fore. We do not have even 500 quality companies listed on the stock exchanges in India but there are more than 300 equity schemes. What will act as the differentiator?  Why should the regulator permit a fund house to come out with news schemes when the existing schemes have performed pathetically? The objective of a mutual fund scheme is not to grab as much money from retail investors as possible; rather the focus should be providing returns.

Another aspect that reflects poor performance of mutual funds is the inability of fund managers to beat the benchmark against which they operate. It is understandable that in falling market, mutual funds cannot perform a miracle but at least majority of the funds should beat the benchmark index but in India this has not been the case ( Reference: S&P CRISL SPIVA report).  Additionally gross mis-selling of mutual funds has been happening all around. Even a noble scheme like RGESS was not spared (High value applications perverting RGESS, while SEBI remains mum). It will become difficult to pitch mutual fund as an investment option for retail investors in future if the trend continues.

Consistently poor corporate governance practice:  Hardly a day passes which does not have news on the poor corporate governance practice of companies listed on the stock exchange.  Look at the recent incidents of money laundering reported in the leading banks in India. Share price of the three banking companies took a severe beating in view of news related to money laundering.  But the problem does not stop here. The stock market is full of examples where share prices have fallen sharply which have taken many investors by surprise. The recent examples of Manappuram and NHPC show how investors were taken off-guard. Real estate companies are an example of how corporate governance practices are completely ignored by these companies, ultimately hurting the interest of investors.

Apart from these, there are various other factors such as poor performance of IPOs (initial public offers), gold providing a good return over a period of time and high rate of return offered by bank deposits and other relatively risk-free assets.  There is no denying the fact investments in equity is a must for wealth creation but if the performance of the stock market continues to be as pathetic as it has been in the recent years, retail investors will continue to keep away from markets. There is an immediate need to instill confidence by adopting measures which promotes healthier practices in the companies and financial intermediaries such as mutual funds. Also there is a need to introduce new measures to control the entry of companies in the stock market. Retail investor participation is must for creation of a broad based, stable equity market in India.


(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)



Ashit Kothi

4 years ago

WHO CARES FOR RETAIL INVESTORS? EVERYBODY WANTS THEM TO DUMP THEIR HOLDINGS, NOTHING ELSE. IF ONE REALLY WANTS RETAIL INVESTORS TO COME BACK, FIRST take very strong and penallising steps against the promoters of the defaulting companies. Identify them, put them on the WEB, activate international alerts for them. Do not allow promoters of the company to change name of the companies every now and then. Force Promoters to declare all the information - financials, holdings pattern with regards to mergers, demergers, amalgamation, acquisition and the rational behind the same. The rational has to be certified by renowned Consultancy Services and they will have to own up their comments.


5 years ago

Good article & correct facts.
I am an investor in the share market since last more than 35 years and am comfortable with my old investments. But have lost heavily in fresh investments made in last 5/6 years, including those in MF and IPOs. (Biggest loss was in Raj Oil Mills shares). MF investments, it appears, enrich only their fund managers and employees. I feel, one reason of Companies' shareholders not gaining is the greed of their Directors / employees fattening their pay packets (with no controls from Govt. etc.) & not carrying for their investors.


5 years ago

India remains a gamblers market with Government (UTI/LIC, interest rate and borrowing compulsions) etc remaining the feudal boss. I lost a fortune over four years by not moving out of mutual funds and into debt funds though I was advised to do so by my friend Kiran Boal.

Vaibhav Dhoka

5 years ago

When will one invest? If he gets good return,good liquidity and timely action in case of complaint in any.None of the things are present in stock market and mutual funds.But most of above criteria are fulfilled in bank deposits except high return.

Ramesh Iyer

5 years ago

One thing common between the financial and legal system in India is that both work only for the rich people. In fact, those who manipulate the financial system often also know how to work the legal system in their favour, ensuring that the oft-repeated cliche "the law will take its course" remains just that - a cliche.
Besides, regulators like SEBI and RBI have done precious little to boost the confidence of small investors by reviewing and revising their policies, or punishing known offenders like Sahara.
Hence, small investors, like petty / poor criminals, know that the system is loaded heavily against them, and only favours those with deep-pockets.

Sunil U Patil

5 years ago

A simple answer to a loaded question :We mangoes have lost faith in the System .


5 years ago

Past 5 years track record: In the span of past 5 years we have had two major global economic crisis. This five year period is one of extreme aberration, and must not be confused with normal times. Thus the past 5 years performance may tell us nothing or very little about the next 5 years. Investing in equities is like driving. You cannot drive ahead by looking into the rearview mirror - you must look through the windshield.

Volatility: Equities are inherently ‘highly’ volatile. Equity investors must be prepared emotionally for stock prices to fluctuate widely. You cannot invest into equities / equity mutual funds with the mindset of a fixed deposit investor. Equities cannot be expected to fluctuate any less because you don’t like volatility in your portfolio.

Temperament / Mindset : Investing in equity is not everybody’s cup of tea. To invest in equity you need to have a different temperament / mindset altogether. A true equity investor has the temperament to handle with equanimity a substantial fall in prices. Investing in equities is not about sidestepping stock market crashes; it is about withstanding the crash in stock prices with equanimity. This ‘trait’ of a true equity investor cannot be cultivated through any number of investor education programs.

If you have the conviction, falling prices provide a great opportunity to buy more of the stock at lower / bargain prices.

But when will the Indian retail investors understand and act?



In Reply to Nilesh KAMERKAR 5 years ago

When Markets are giving negative growth,Why shold anyone Invest in it,while other Avenues are availble giving better Returns ?Even MFs compare their Performance with Index Growth to Marketing their Product.Your Arguments apply till 2008 ,till FIIs invested and NOT Later.Thus Retail Investors are moving out,without new Entrants,which is Correct..

Suiketu Shah

In Reply to NSriramamurty 5 years ago

Sir one other point to further back what we both agree on-look at the no of folios on equity mutual funds now compared to a yr ago.They have drastically fallen and stil falling to probably alltime low soon.People rightly have no faith in Indian equity markets due to large scale manipulations to fool retail investors who are gullible or easily taken by big talk of reputed fund houses/wealth management companies who give designations to their managers as "directors" to fool customers.

Suiketu Shah

In Reply to NSriramamurty 5 years ago

Sir,what you are saying is dead right.Problem is Indian equity market is highly manipulated and not straight forward like in several first world countries.The intention is to fool retail investors in any which way.Mos of Indian equity market is based on insider trading and manipulations by big brokers,wealth management companies and punters.

One also shd stay far far aware from the tall talk of wealth management companies who since last 2 yrs have always been giving the false impression that boom is round the coenr in Indian equities.The economy is so so down ,boom in the near future is out of the question.

I totally agree with yr rational thoughts which makes total sense sir.Have a nice weekend.


In Reply to NSriramamurty 5 years ago

What can one say to those who refuse to learn? It is better to give up.

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