Stocks fail to attract wealthy investors

In the first six months of the year, the average number of deals a month stood at 1,264, against 1,484 in the six months ended December 2012

Though shares of many companies, especially mid- and small-cap ones, are available at throwaway prices, these are yet to attract the India's wealthy investors.

The general aversion of the rich towards stocks is reflected in data on recent bulk deals on exchanges, which have seen a decline in the last few months. In the first six months of the year, the average number of deals a month stood at 1,264, against 1,484 in the six months ended December 2012.

Bulk deals are defined as those in which the total shares bought or sold are more than 0.5 per cent of the equity shares of the company listed on the exchange. Bulk deal activity is considered an indicator of the appetite of high net worth individuals (HNIs) for stocks, as this class of investors usually buys or sells in major quantities.

Wealth managers said equities had clearly fallen out of favour with HNIs. "Unless you make money (in equities), you are not going to come back. Investors are looking for asset classes that are safer and give better returns," said Ambareesh Baliga, managing partner at Edelwiess Global Wealth.

In the last six years, equity markets haven't seen substantial movement, with the BSE Sensex and NSE Nifty trading at the same levels today as they were in 2008. "Between 2000 and 2008 January, the market cap of the indices increased eight-fold. The market cap of about 50 companies in the BSE 500 was higher when the Sensex was trading at 8,200-levels, compared to what it is today," said Chokkalingam G, executive director and chief investment officer, Centrum Wealth Management. "They have failed miserably in rewarding investors."

Relationship managers catering to HNIs said many of their clients were struggling to exit the mid- and small-cap stocks they had bought in large quantities, at high levels. "There is a long line of sellers, but hardly any buyers. This is why bulk deals are down," said a relationship manager with a broking firm.

"The appetite for equities is there, as people have seen money coming in the past. But the confidence needed for fresh investments is not there," said Baliga.

While equities have been unable to provide good returns, investors have found solace in asset classes such as real estate, gold and the debt segment. Currently, wealth managers are advising HNIs to cut equity exposure to 20-40 per cent. At one point, the exposure was as high as 60 per cent, depending on the risk profile of the investor.

Investments in the real estate sector command about 35 per cent exposure, followed by debt instruments (about 20 per cent) and gold (about five per cent). Managers said the fall in gold prices had made investors cut exposure to this asset class. Earlier, exposure to this segment stood at about 10 per cent.

Wealth managers said while there were no fresh investments in equities, there was a churn within different equity instruments---those investing in a particular sector were now moving to stocks in another segment. "Now, equity investment by HNIs stand at 20-40 per cent, but this is largely re-allocation of existing stocks. New money into equities might have reduced, but overall asset allocation may not have changed too much," said Sunil Mishra, chief executive of Karvy Private Wealth.