Dinesh Thakkar, MD, Angel Broking, explains in an interview that retail investors' participation in the equity market is falling, but the share of organized players in broking business is increasing.
What is your call on the market movement in the next few months?
Let me tell you that a perspective spanning a few months will benefit only the traders. We believe the Sensex will move between 12,500 and 13,500. The current values are slightly over-stretched.
The market may correct as the next two quarter's earnings growth might not be good due to the government's measures to control inflation and curb growth in some sectors.
In the long term, we are very bullish as the India story is intact. The recent flow of investments from foreign institutional investors is more sustainable and long- term. The FIIs have raised 5-10 year old India-specific funds.
How do you see the long term scenario?
In the long term, if India continues to grow at 8-9 per cent, the corporate earnings may be around 17 per cent. If we look at the last 15 years, the Sensex's growth has paralled that of corporate earnings. Going by the past trend and the expected future growth in corporate earnings, the Sensex can be mathematically calculated at 275,000 points after 20 years. The long-term investors should not be worried about a 1000-point fall.
Is the increasing competition impacting the organised broking business?
An increasing number of players are entering the market, but there is still space for more. The share of top 25 broking firms has doubled from 23 per cent in FY 01 to 45 per cent in FY 07 (January). These brokers cater to various segments of investors, such as HNIs, retail and institutional. The small brokers will have to find their niche, which could be the relationship business.
Organised brokers could cater to the needs of a new class of investors, who are more demanding for information, research and advice. Till a few years back, equity investment was confined to Mumbai and western India. But it is now expanding to the north and south.
But is the share of retail investors in the market falling? If so, will this affect your business?
There is a decline. Last year, the retail investment accounted for around 18% of the total market capitalisation, while it is approximately 17% now. When market sentiment gets disturbed, retail investors, especially the momentum players shy away from the market, and come back after a revival in sentiments. Such investors will have to become long-term investors or opt for mutual funds.
How is Angel addressing the issue of falling retail investor participation?
As far as the impact on balance sheet is concerned, we ensure that our expenses do not go up beyond a point. So we are insulated against short-term volatility. For the long term, we are increasing our branch network and approaching private investors for our funding requirements.