Small investors are cashing out of stocks

With the benchmark Sensex nearing its January 2008 peak, retail investors are on a selling spree. Mutual funds are facing redemptions from retail investors looking for a profitable exit after a gap of nearly three years.

In September, investors pulled out Rs 7,011 crore (Rs 70.11 billion) from equity mutual fund schemes, according to data available from industry body Association of Mutual Funds in India (Amfi). This is the highest monthly outflow ever from equity schemes. Since April this year, investors have withdrawn Rs 14,624 crore (Rs 146.24 billion) from equity mutual fund schemes.

"Investors are desperately booking profits," said Surajit Mishra, executive vice-president, Bajaj Capital. "Most of them entered during the earlier boom, but were stuck. As markets are reaching their earlier highs, they are exiting," he added.

Net asset values of more than a third of the total 177 equity schemes that are in existence for over five years have already hit their lifetime highs, according to mutual fund tracking firm Value Research.

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The story is no different in the secondary market. Individual clients, retail and high net-worth individuals, who directly invest in the stock market have sold shares worth Rs 4,838.92 crore (Rs 43.389 billion) in this financial year so far, Bombay Stock Exchange data showed.

"Investors are cautious. They don't want to get carried away like last time (late 2007)," said Pankaj Pandey, head of research at ICICI Direct, an online trading arm of brokerage ICICI Securities. "Wherever they find opportunities, they are cashing out," he added.

Investors that had bought shares during the market frenzy of late 2007 saw the value of their portfolios more than halved after the stock market crash.

Caught in the worst global financial crisis since the 1930s, the Sensex tumbled to around 8,110 on March 9, 2009 from an all-time high of 21,206.77 on January 10, 2008. The index has recovered since then, as overseas investors pumped money into Indian stocks, lured by the country's excellent growth prospects.

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At Thursday's close of 20,315.32, the 30-share BSE Sensex is less than 900 points away from the all-time high. Foreign Institutional Investors have net bought shares worth $21 billion this year so far, the highest ever in any calendar year. In 2009, FIIs had invested $17.5 billion in Indian stocks.

Some of the money that retail and HNI investors have pulled out of mutual funds and the secondary market is coming back to equities via public issues, though. Since April, they have invested Rs 4,157 crore (Rs 41.57 billion) to buy shares through this route, data compiled by BS Research Bureau showed.

The category reserved for retail investors has been subscribed multiple times in most recent public issues, indicating an interest in the primary market.