Make stock markets safer

As the markets enter Samvat 2071 on Thursday and brokers participate with gusto in the mahurat trading, it is probably a time for introspection as to why the retail investor is not participating. The mahurat trading on Diwali day is said to be a pointer to what one can expect in the year. But that is more folklore than reality as there are so many factors, besides planetary conjunctions, that contribute to the markets’ health.

The stock exchanges, to a certain extent, are a rich men’s club consisting of financial institutions, foreign portfolio investors, high-net worth individuals, etc. According to one estimate, retail participation is barely two per cent. The investor magazine MoneyLife estimates that if even one per cent of our population (12 million) invested Rs 1 lakh each in the stock markets that would amount to Rs 1.2 lakh crore — the equivalent of the total foreign institutional investor (FII) inflows for 2013.

The FPIs dominate the markets as they have deep pockets and benefit from the weaker rupee-to-dollar equation. They are able to take the markets up or down as there is no countervailing domestic force. Even the government’s attempt to attract retail investors through the Rajiv Gandhi Equity Savings Scheme (RGESS) has not succeeded. The reason is the heavy losses they suffered in the 2008 meltdown and in various scams. The exchanges and Sebi need to find ways to make the markets safer for the retail investor.