Television those days was still retelecasting old Western sitcoms during equity market hours. Business news was only what Doordarshan dished out once a week. But market action was matched by the slew of magazines and expanding pages in business newspapers about stocks. Most of them spent so much energy on recommending IPOs—some even scored them. The new tribe of merchant bankers (there were four categories depending on intensity of role) was growing by the day to hit almost a thousand firms!
At the Indian Institute of Capital Markets where I then worked, the dean decided to stock up offer documents. We began with one shelf at the library and were soon running out of space. An entire row and soon a few rows were devoted to these bound volumes. The frenzy was about how the IPOs were being offered at a low price and trading at a premium.
That question about names remarkably persists through the years, because we have been pursuing this idea that direct retail investor participation in equity markets is a virtue that must be encouraged. But retail investors do not progress much beyond asking around. They are quite constrained in their quest to become the sharp and smart equity investors that they like to be. And history keeps them lazy with its turns of fortune.
By 1996, some of the companies that came in the post 1992 era with IPOs had vanished; some were trading at a steep discount to issue price; some were found to be dubious operations; and it was widely known that the retail investor had been ripped. But it wasn’t new anyway. The shortcuts just became different as has been the case even earlier.
In the 1970s when the first flush of retail investors came to the market, the enabler was the government. In a very dramatic turnaround they decided that MNCs cannot have majority equity stake in the businesses they ran in India. Foreign Exchange Regulation Act (FERA) mandated that they liquidate their stakes to the Indian public at prices determined by the CCI. Well run businesses sold equity at a steep discount and as the word spread, retail investors bought every offer that came in.
In the 1980s we began the process of liberalization. Stringent and restrictive policies that stifled businesses were dismantled, typically in the Union Budget announcement. Thus which stocks would rally in a year depended on whether the government deregulated paper, allowed steel scrap import, modified cement controls and so on. Industry analysis of the budget was the most sought after activity—we still pursue it even if it is not as relevant as then. But magazines of the 1980s thrived on publishing names. Just what the retail investor needed.
In the 1990s the game changed to the identification of multi-baggers. From time to time, a new fad came about. Capital was invested in what was touted as the next big thing. From teak farms, orchards, we graduated to the soaring profits in technology, banking, pharma, retail, real estate; and that list dynamically swung and changed. Sector investing was the thing to chase. Until it all unraveled with the technology bust of 2001.
Then it was the mid-cap and small-cap mania. We loved the stories of small businesses making it big and we celebrated the Indian brand of entrepreneurship. We bought into stories of innovation and smart business acumen that enabled ordinary people to build extraordinary businesses. Retail investors wanted to worship these Demigods that made them money. Even if many fell by the wayside as mere frauds. Stock picking had now moved from magazines to television and to gurus that were experts. Yes, they all spewed names. By 2010, online chats and forums dominated the name game and several more gurus sprung up.
As we swing along in this game of devotion to the equity cult and the magical wealth that equity investing offers, we continue to remain dependent on the names. For we don’t have much of a choice. In the years we bought into one story or the other and found our fortunes, we took the hit and miss in our stride. We could have bought duds; we could have traded futures and options mindlessly; but we mostly swore to being value investors of the Warren Buffet school even if we had never fully read or analysed a single stock’s fundamentals. Someone had to give us the names for we were the retail investor that must invest in equity.
Mutual funds and portfolio managers came and sold their wares. But we remained on the fence. Somehow we remained convinced our quest for names can beat an institutional process. A small and growing tribe placed its faith in the SIP, but IPO is something we cannot ignore. We need to try our luck anyway. Small and discreet investor groups exist that do the hard work of equity analysis.
But that is more the exception. Statistics reveal that a very tiny segment of the population invests in equity; another tiny percentage owns mutual funds; and that the majority shuns equity as too risky to consider making long term investments for building a corpus for themselves. But the noise and the craving for names remain in the limelight. From one IPO to another, there is the drama of informed discussion about why a stock must rise in value and why it is being offered to the retail investor at a discount. I am not mentioning names, but there exists a fresh swarm of equity investors that come in a wave and exit in another wave, riding mostly on names that are floating about.
Sometimes the story grows into a theory and carries several names. Sometimes it metamorphoses into an animated discussion of a new narrative that promises sure wealth at the other end. Sometimes it just seems like a simple play of tricks at the online terminal, until a crash washes it all away. Sometimes there is a hero that shows the path, only to turn into a villain and criminal at some point.
But retail investors firmly believe that the equity markets owes them, as they are the ordinary investors that must be made rich. And the show goes on.
(The author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING)