Market gets 20 lakh new investors in last one year

The recent surge in account opening activity is largely attributed to capital market-bound PSUs getting demat accounts opened for their employees to help ensure the success of their forthcoming public offers

New investors seem to be rushing to the stock market, at least on paper, as more than 20 lakh people have got themselves a trading account in the past one year, reports PTI.

The total number of demat accounts, mandatory for investors to trade in stocks in the country, has crossed 1.7 crore mark this week, up from about 1.5 crore a year ago.

However, a large proportion of the account holders are non-active investors and retail investors with failing interest in public offers and mutual funds (MFs) — once their favourite investment instruments.

The recent months' surge in account opening activity is largely being attributed to capital market-bound public sector undertakings (PSUs) getting demat accounts opened for their employees to help ensure the success of their forthcoming public offers.

As per the data available with the two depositories, Central Depository Securities Ltd (CDSL) and National Securities Depository Ltd (NSDL), which are entrusted with the job of opening and managing demat accounts in the country, the total number of valid investor accounts currently stands at over 1,70,00,000, against nearly 1,50,00,000 a year ago.

This does not include nearly five lakh frozen accounts, where necessary documentation like PAN (Permanent Account Number) is not available and trading in not permitted.

CDSL has about 67.7 lakh investor accounts and over 1.02 lakh accounts are with NSDL. Between them, CDSL added nearly 11 lakh accounts and NSDL over nine lakh in the past one year.

Asked about the rising numbers of demand accounts, brokerage and investment banking firm SMC Capitals' equity head Jagannadham Thunuguntla said: "State-run firms are trying hard to open demand accounts for their employees to ensure greater retail participation in their public offering that is a welcome move."

However, in most cases, these account holders do not trade frequently in the market and remain inactive, he said.

Besides, on an average, about two lakh demat accounts are being opened each month, whereas the mobile customer base is increasing much faster (at a rate of about two crore per month), Mr Thunuguntla noted.

Industry experts also point out that the initial public offer (IPO) market and mutual funds have lost its charm for retail investors.

The mutual fund industry is estimated to have seen exit of over four lakh investors in the three months between March and May 2010, while most of the recent public offers saw dismal retail participation.

"Of late, it is getting difficult to attract retail investors into markets, as most of the recent public issues are trading below their issue prices," Mr Thunuguntla said, adding that secondary market was also not seeing any huge participation from retail investors.

Some brokerage houses, however, believe that the retail investors might prefer to trade directly in secondary market, rather than through mutual funds or opting for primary markets, as non-serious investors, coming from a few IPO-bound PSUs, cannot account for all 20 lakh new investors.

However, they believe it could be a dangerous trend, as new investors might not have the expertise to trade in the secondary market without the counsel of portfolio managers.

But, returns have not been great at equity mutual funds in recent months, although the stock market benchmark indices have moved up considerably, and this might have led to investors' exit from funds and a direct entry into stocks, a senior official at a leading brokerage house said.

About 4.07 lakh investors are estimated to have closed their mutual fund accounts, as determined by the change in the number of mutual fund folios, between March-May 2010, largely driven by redemption in equity-focused MF schemes, as per the latest data available with industry body AMFI.

The industry, including market watchdog Securities and Exchange Board of India (SEBI), is looking at ways to draw more investors to the mutual funds as also to the primary and secondary stock markets.

Experts believe that MF schemes need to be simpler and attractive to get the investors, while public offers, including those by PSUs, require to be made better priced.

"Higher pricing of IPOs block the entry of retail investors for issues. Investors' confidence is very low towards the IPOs as they are continuously losing their money," CNI Research chairman and managing director Kishore P Ostwal said, adding that small investors have lost faith after losing money even in some big ticket IPOs like Reliance Power.

"A heavy discount of 35% for retail investors helped the state-run NMDC public offer, but no business house wants to give returns to retail buyers by offering lower price bands," he added.

"There is still appetite for quality public issues at reasonable valuations. The firms bringing public issues have to be extra careful about their valuations and price bands, till the time investors' faith is restored," Mr Thunuguntla said.

Criticising the over-pricing of the public issues, top banker Deepak Parekh, who also heads a key SEBI committee on primary markets, recently said that IPOs were being over-priced and nothing was being left on table for investors.

"...Investors are not fools and why should they invest in the market today and lose the money tomorrow," Parekh said, and ridiculed the companies managing to get a few thousand investors despite expensive ad campaigns on TV, newspapers and hoardings.

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Corporates put mutual fund entry plans on back burner

Industry players blame low margins and tough rules for turning the once-lucrative mutual funds business into sour grapes, wherein existing players are contemplating selling out and applicants no more being keen on securing approvals

Nearly two dozen firms awaiting the Securities and Exchange Board of India (SEBI) nod for setting up mutual funds (MFs) now seem to have had a change of mind and they are dilly-dallying on the matter, reports PTI.

Many of these applicants had to furnish more information but they are delaying getting back.

Industry players blame low margins and tough rules for turning the once-lucrative mutual funds business into sour grapes, wherein existing players are contemplating selling out and applicants no more being keen on securing approvals.

There are about three dozen fund houses operating in the country, but business has come under pressure in recent months, with June alone seeing a 16% dip in total assets under management (AUM).

Besides, there are about a dozen more entities registered with SEBI.

On the top of it, as many as 24 applications are pending with SEBI for entering this business, but the processing status data available with the market watchdog indicates a lack of interest from most of those who had earlier announced mega plans to enter the business.

Out of these applications, 18 have been asked to furnish further information and such pending applications date way back to 2006.

"The corporate houses are shying away from entering the asset management business as they are finding them less attractive with the SEBI now turning its focus to making it investor friendly," a senior industry official said.

Those awaiting SEBI nod include Matrix Financial Services (since March 2006), Indiabulls (June 2007), Nikko AM (July 2007), India Infoline (January 2008), SREI Infra Finance (July 2006), Union Bank of India-KBC Asset Management (February 2009).

Entities seeking approval from SEBI also include Jaypee Capital Services, ASK Investment Holdings, Prime Securities, Karvy Stock Broking, Unicon Securities, Mahindra & Mahindra Financial Services, First Global Stockbroking, Bajaj FinServ-Allianz Global Investors, Enam Asset Management and Parag Parikh Financial Services.

Besides, HDIL Constructions and Kumar Housing are seeking nod to set up real estate MFs for about a year now.

Out of these applications, only one (Parag Parikh Financial Services) was filed this year and the remaining were submitted with SEBI between 2006 and 2009.

Sources in the industry said that many potential entrants are putting their entry plans on the back burner and even some existing players are developing cold feet, presumably because of falling margins and tough regulations.

Compounding their woes is the fact that those looking to exit are unable to find buyers at the price sought by them.

"Overall the MF industry is in a dilemma after SEBI turned its attention to the MF industry to make it more transparent. Distributors are now preferring to sell insurance products," SMC Capitals equity head Jagannadham Thunuguntla told PTI.

"The margins of existing players are getting squeezed. Although there are a lot of players on the block, but there are few takers for them," he said.

Among the existing players, at least half a dozen are exploring ways to partly or fully selling their stakes, a senior official at a leading fund house said.

The mutual fund industry lost 16% from its average assets in June, taking the total to near Rs ,75,000 crore, as per the data available with the industry body Association of Mutual Funds in India (AMFI).

On the regulatory front, SEBI has been working hard to make the business investor-friendly, but some of its steps, such as abolishing the entry load and crackdown on agents' commission, are being blamed for having actually worked against the industry.

Sales of equity schemes of MFs have been hit worse, after SEBI banned mutual funds from charging investors to pay fees to distributors.

Last month SEBI chairman CB Bhave said that the MFs needed to look at how investors benefit from investing in their products, rather than create an incentive structure that suits them.

Although the industry players agree to weaknesses in the way they function, they are also blaming regulatory actions.

At a recent summit, AMFI chief H N Sinor said that the industry has lost its growth momentum after recent regulatory changes and the polices needed to be reworked.

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