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Whither small investor - Views on News from Equitymaster
 
 
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  • Apr 13, 2000

    Whither small investor

    The recent see-saws on the Indian and global stock markets have come as a rude shock to thousands of small time investors.

    The roller coaster like ups and downs in the indices have left many an investorís heart palpitating. Indian markets, which had won plaudits for being isolated from excessive fluctuations have fallen prey to the same.

    Attracted by the recent upsurge in stock markets globally (riding on the back of technology stocks), millions of investors have taken the plunge by staking their hard earned savings in stock markets or through mutual funds.

    Trading volumes have gone up exponentially also due to better services such as paperless trading, transparency in operations, reduction in brokerage and streamlining of trading and settlement procedures to ensure reduction in bad deliveries and other malpractices. Plans are also afoot to introduce Internet broking and integration of all stock exchanges.

    However fund managers have abandoned all traditional norms of valuations such as price to earnings and earnings per share and wantonly valued technology shares at absurd prices using vague models. They have also revealed a marked tendency to exhibit a herd mentality while taking decisions, which shows how bereft they are of originality. They are perfectly pleased to value a technology stock 100 times more than that of one of the old economy though it has similar earnings. The colour of money is the same. Why should the source matter?

    Investors who were exhorted to place their funds with these so called experts are ruing their decision wondering whether they could not have invested themselves or refrained altogether. The net asset values of mutual funds have been showing as much volatility as the indices, running contrary to the popular theory that mutual funds are not as volatile. Several who thought old economy stocks had bottomed out have discovered to their chagrin that the prices have declined even more sharply after giving some moments of cheer. The most encouraging of results have failed to enthuse market sentiment.

    Unless there is a sea change in the skewed preferences and valuations made by fund managers, millions of investors who are already beginning to feel disenchanted shall look for safer avenues for investing. Investor grievances must be disposed off more speedily. Curbs should be placed on excessive bank lending against shares, collusion between fund managers and operators should be checked and a crackdown must be launched on speculation, rigging and insider trading. If these measures are not launched at the earliest, the stock markets run the risk of losing their fulcrum - the small investor, who is exiting in droves.

     

     

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