Indian
Stock Markets, a big victim of under equity ownership: HUGE OPPORTUNITY FOR
EARLY BIRD INVESTORS as Numbers of Investors will rise 5-10 times in next 5-10
years.
Read
Inside:
·
The
actual number of investors having demat account in NSDL and CDSL
·
We
have less investors……That is the reason why we want you to invest NOW.
·
Here
we are only talking about Resident Indians. The investors who are going to
invest into India are FIIs and NRIs too, who will make stocks rise as they all
try to chase stocks.
·
The
declining number of mutual fund folios
·
The
gold schemes are eating into equity funds money
·
The
shanty cash segment volumes in BSE and NSE cash segment…and of course the space
for humongous increase
·
The
3rd Indian Equity market Revolution is coming in the form of RGES
and MCX-SX. Read how…
THE
TRUTH OF NUMBER OF DEMAT ACCOUNTS WITH CDSL AND NSDL.
At the end of
September 2012 there were 80,99,277 investors accounts with CDSL (Cenral
Depository Services Ltd) while the number of investors accounts with NSDL (the
CDSL counterpart of NSE exchange) was 1,24,41,779.
This makes a total of
about 2 crore demate accounts. We can exclude several inoperative accounts
which are not being closed down because the demat account holder does not
bother to close it or because they are life time free account or because
investors want to close but they don’t want to pay the DP charges that have
piled into the accounts and so the account cannot be closed. Many accounts were
only opened to take advantage of euphoric bull run of pre 2008 market crash
while many accounts were created overnight to solely subscribe to IPOs.
Remember demat-opening mania at time of Reliance Power IPO.
Also exclude accounts
which were only opened for trading purpose and for benefiting from speculation
during bull markets. Then exclude accounts which are in multiple, for e.g Mr. A
has 3 demat accounts with 3 different brokers. All accounts with different
brokers are counted separately. Thus, there are many persons, who have opened
multiple accounts. The point is if we see the actual number of demat account
holders who are termed to be ‘genuine investors’; will be even below 2 crore.
We should also exclude investors who haven’t bought into stocks in last 5-8
years and are holding stocks in demat just because they had to hold into demat
as a compulsory measure and hold these stock because they have got in heir or
legacy or they have bought it before decades. The point is that these people
are also not the participants of the new age Indian economy and simultaneously the
stock markets.
In USA the equity
participation is as much as 30-40% either direct or through mutual funds. You
can see that USA markets enjoy a high PE ratio even when it is in recessionary
phase, while going up and up only since its inception with regular interval of
cycles. You will think that they are a developed nation. Yes ! And that’s why
they are developed nation. I am not saying we would achieve 30-40% equity
participation in next 10 years. But even we achieve 5% participation (5% of
total population invests in equity markets) then it is more than double the
present level! In simple language, if there are 1 lakh investors who want to
buy ABC stock, then there will be 2 lakh of them. The result will be price
spiral and higher PE, and definitely more profit to those of the 2 lakh
investors who entered early! It’s plain and simple demand supply. The higher
the demand the higher the quoted price of the stock.
MUTUAL
FUNDS. AILINNG INVESTMENT INDUSTRY IN INDIA. FALLING FOLIO NUMBERS.
Some will argue that
mutual fund is also big contributor and there are crores of Investors invested
in equities through mutual funds. As per AMFI (association of mutual funds in
india), the number of folios (investors) in equity and growth funds, as on
September 2010 was about 4.7 crore including debt schemes, funds of funds,
balanced schemes, and growth/equity schems. If we exclude debt
schemes/non-equity schemes, then we get about 4.25 cr number of folios. Once
would say that these close to 5 crore investors are there in market and it is a
big number. However, the numbers tale farther story from truth. First thing is
most accounts are (as per our assumption more than half) of investors who
already have demat account, so these investors can not be counted in total
number of investors. Secondly, most of accounts are for SIP of monthly 1000 and
more which is very meager and negligible amount and do not influence the
investor, the fund or the equity market in which it invests until very very
long term which is 10 years and more. Thirdly, these numbers are of September
2010, we are talking 2 years back. You will read in our separate article how
investors have cashed out in stocks both on exchanges and in mutual funds by
selling their shares and closing their folios. So, this figure of 4.25 crore
must be reduced by 10% plus to arrive at number of folios as on September 2012.
Thus, if we reduce all the above elements then we will not get ‘genuine unique
investors’ folio number more than 1.5 core ! This is the truth, we are not just
into research and advisory but also into stock broking and mutual fund
distribution, so we know well.
The advent of gold
mutual fund schemes (which invests in listed gold ETF of same AMC) are bad news
in addition for equity mutual funds as it is and will rapidly eat into the
share of them.
GENUINE
UNIQUE INVESTORS:
As per the 2011 15th
Census of India, we have 121 crore people living in India. Just think. If we
exclude the non-earning members of family, children, aged persons, and below
middle class persons; you will get an eligible investors class of close to 50
crores, of which about 5% only are invested right now. However, the right way
to calculate is by considering the entire population and on that count India’s %
is less than 3% against 30-50% in developed countries.
So, in effect there
is less than 2.5 crore investors who can be said to be holding and making the
prices rise. These are the people who were there in 2003 and post bull runs and
still continue to be investing or invested in markets and fall under ‘genuine
unique investor’ definition so as to qualify to be reckoned as a force which is
participating and causing the markets to sustain and move.
THEN
THE REVOLUTION:
The father of the
modern Indian Stock Market as we know it know, can be said to be Mr.Dhirubhai
Ambani, the founder of India’s largest private sector company. He saw the seeds
of equity cult in post-freedom India. That was the 1st phase of
Indian Equity markets development. The 2nd phase was brought in
after the 1991 liberalisation, pirvatisation and globalization move by the
Government of India and parellaly inflated by big stock markets operators such
as Harshad Mehta and Ketan Parekh. This phase was more of devastating than prospering
to most investors as it ended in mayhem with expose of scams and stock
manipulations. Then the 3rd phase, and first genuine modern bull
market was after 2003 which persisted till 2008 and markets rose close to 10
fold during this phenomenal bull run. This did not came along overnight. It was
the result of maturity attained by Indian economy in 2 decades of
liberalization (1991-2002), opening up of more sectors, FDI, torrent of FII
money, listing of new blue chip companies, dematerialization and digital
depository operations systems put in place as well other technological supports
and systems developed since 1996 when NSE india was formed.
Thus, the first
modern, and structural bull market in India began in 2003 and end in 2008 after
the subprime crisis erupted in India. However, the main beneficiary of this
bull market was operators, brokers, HNIs, FIIs and promoters of course who
fetched lots of money by floating IPOs. The mutual fund market was in its
infant stage at that time. So, there is no reckoning of it during this time.
Thus, largely the majority population remained isolated from the market run up
and its benefit.
Now, these
populations is hungry and want their pie of profits from stock market which is
the barometer of economy and which is where you get the benefits of leaping and
bounding profits of private companies and thus economic growth of India.
But, that’s not just
the story. The 3rd phase of bull
market and equity market boom in the country is just about to come. This
time it will be brought about by 2 factors. (1) The start of MCX’s stock
exchange in early 2013, and (2) The introduction of RGES (Rajiv Gandhi Equity
Scheme) by the government of India in budget 2012.
Yes. This two
dynamics will bring about the maximum number of new investors in Indian equity
markets, which is the most important need of the hour for sustenance and
development of the equity culture in India. The RGES will expose a whole new
lot of middle class people to stock markets, who have never invested into
stocks and from states which have remain isolated from investing into equities.
Hitherto, we have seen that Gujarat, Maharashtra, Delhi, Rajasthan and some
south Indian states were the main participants into Indian markets. Now, the
whole hinidbhasi states band wagon will also join while north-east will get
exposed in next phase, and the participation of already dominant Gujarat,
Maharashtra states will likely increase.
Please also read
article on ‘DECLINED PARTICIPATION IN INDIAN EQUITY MARKETS’ and ‘SHOCKING FIGURES
FROM NSE’, for more insight into narrow equity culture in India and understand
vast opportunity for early bird investor in next 3-6 years.