Retail investors are back investing

Retail investors may have been staying away from the stock market after the May meltdown, but the flow of household savings into equities has grown over four times in the past year.

The share of the country's household savings in equities and debentures has grown from 1.1 per cent in 2004-05 to 4.9 per cent in 2005-06.

During the Harshad Mehta-led bull run in the early 1990s, the share of household savings in the equity market had touched 5 per cent, before the securities scam drove retail investors away.

In real money terms, the flow of household savings into equities last year was Rs 29,008 crore (Rs 290.08 billion), against Rs 4,967 crore (Rs 49.67 billion) in 2004-05, according to the latest statistics by the Reserve Bank of India. The figure includes the amount invested in the equity market through mutual funds.

In developed countries, the share of household savings in the equity market is as high as 15-20 per cent.

"In India, pension and provident funds are not allowed to invest in the equity market. However, some of the largest pension funds in the US have entered the Indian stock market," S Muhnot, managing director and CEO, IDBI Capital Markets, said.

It is estimated that if 5 per cent of the pension fund corpus is allowed to be invested in equities, about Rs 30,000 crore (Rs 300 billion) will flow into the stock market.

In 2003-04, the household savings in equities and debentures was as low as Rs 492 crore (Rs 4.92 billion), or just 0.1 per cent of the gross financial assets.

The stock market had a tremendous run in 2005-06 with the bellwether Sensex rising 70.11 per cent from 6,605.04 on April 1, 2005 to 11,279.96 on March 31, 2006. In comparison, the Sensex had posted only a modest 13 per cent growth in 2004-05. Get more information