Unilever plc’s announcement to increase stake in its Indian subsidiary to 75% implies that the wheel has turned a cycle and we are back to the starting point. In the 70s, under the government pressure, most MNCs, who wanted to continue operations in India, had to offer shares to public and get listed. Some MNCs, notable ones being Coca Cola and IBM exited and came back only in the 90s after liberalization. Looking back, the managements of MNCs who decided to stay back must be lauded for their vision as they saw what none saw at that time – India’s huge consumption potential.
According to many old time brokers, the MNC listing is what started the retail equity cult though some attribute it to Maker 4. Castrol, HLL, Brooke Bond, Ponds, Nestle and Glaxo are among those which made retail investors gain lakhs of rupees. Even now, I meet a certain class of investors, typically Gujjus staying in South Mumbai, who only invest in MNCs.
It was also interesting to read in the media how such MNC delisting will lead to a complete destruction of equity cult in India - which the Honourable FM is trying to promote. I am an interested party because the company for which I work is into financial services and that too with a high retail presence. I am also an affected party today given the apathy of retail investors. Still, it is too early to write off the retail investor completely.
So where have the retail investors gone? If you look at the Sensex, which is now threatening the 20k mark, then things should not be as bad as they appear. We are barely 5% below the peak on a closing basis of 20893, which was touched on Nov 5, 2010. Many of the A group stocks especially in FMCG and pharma are near their highs. In spite of fears of NPAs, bank stocks are doing well. Private banks continue to command high price to book multiples. Capital Goods, Real Estate and Infra stocks have taken a heavy beating and even telecom stocks have recovered a bit. I am not taking into account Bharti’s weakness on account of the results today.
But if you talk to any financial intermediary (this sounds better than a broker) then there is frustration. Shoulders are sagging and no one can believe the Sensex is again trying to capture Mt 20k.
In the last five years, most investors have got fatigued seeing no returns. Few of them have huge MNC Pharma and FMCG exposure and most of them are licking wounds of capex cycle stories. And in same period they saw Real Estate and gold giving decent returns. Let me recount two anecdotes: A friend of mine who heads a large corporate invests only in real estate. Out of sheer decency, I am not reproducing his colorful language but sum and substance is that now you can buy and sell flats in white, pay taxes and enjoy life so why get into capital markets?
My other friend is heading a financial services company and puts his money in bank FDs and only debt funds. Incidentally, in his younger days he was a speculator of reasonable size.
When will we see retail investors coming back? They tend to come in a broader market rally and that will happen only when broad economy picks up. We are still nursing the hangover of 2007-8. Declining gold prices will also accelerate their re entry.
Regarding delisting of MNCs, one should not look at this as the end of road. There have been MNCs in India who have lost the plot and become BIFR cases. For every HLL you missed, think of WIMCO. Indian companies have also delivered stellar returns like Dr Reddy’s and Infosys. Even PSUs, which were temples of modern India and the iron frame which built the country can regain glory if given a free hand. So, I think one should not read too much into the HUL delisting.