Monday, September 27, 2010

Is it time to fool the retail investors again?

The Indian stock market looks all set for another bull run. Take a close look and you will realise that the run up is already in motion. In the beginning of this year, March 2009 to be exact, NSE Nifty was around 2600 mark, now it stands at above 6000 points. That is a gain of about 131% over a period of 18 months. What is remarkable is that all this has happened at a time of global gloom. All most all major markets were looking south but the Indian market defied all that bad news and moved from strength to strength. The run up (till now) is fueled by money from domestic and foreign institutional investors. The retail investor is no where to be seen, they are sitting in the sidelines and licking bruises of 2008. This is evident from the fact that the run up is an index only event and is not seen among the mid caps or small caps.

If (yeah!,it is BIG if) things go well globally, the Indian market would be literally showered with good news from all quarters. The market sentiment would hit the sky and that is going to boost  the indices to  new all time highs. As usual, the retail investor will get to know about it very late. They will the see soaring indices and   the extremely high valuation of shares. The stock market experts on TV and other media would compete among one another to predict the next  high. The media would be filled with reports on the thousands of crores that were added to the market caps, Mukesh Ambani becoming the richest person in the world, India rising, rags to riches stores etc etc etc.  All this will make it too good to resist for the retail investor and like the moth to a flame, they will enter the market. By this time most of the shares would be over priced and only a greater fool would save the retail investor and they will have to find that among themselves.

We have seen this happen every time there is a major bull run in the market. The big player in the market makes all the big bucks at the expense of the retail investor.  This gives the market a bad name and the majority of the population stays away from the market. At present, less 2% of household savings go to the equity market. What can we do to turn the tables here? The usual answers are to educate the general public about financial market, urge them to do more home work before investing, think long term etc etc. All this looks good on paper, doesn't work on the ground. Why, because the retail investors are not Rakesh Jhunjhunwalas or Waren Buffets under the hood. They don't want to think about the P/Es and quarterly profits before investing their hard earned monies. What they need are smart investment products that are tailored to the needs of the Indian retail investor. These should not be an invented in the US and sold in India kind of product. The product should have to go beyond what the mutual fund has to offer. I know it is easier said than done, needs some very smart thinking but whoever does that has huge bottom pyramid market to cater to.

So until then we have a huge gullible mass of people out there and  as the saying goes fool and their money are soon parted.