Thursday, 23 April, 2009

The elusive retail investor

“In India, only 5% of the investors in the stock market are retail investors; the rest are institutional investors.” Our stock market may be miniscule and immature by American standards, but the figure of 5% sounds extremely suspicious. Yet it is bandied universally.

Can it be that only 5% of the trades are made by retail investors, and 95% by the institutions.

An article on retail investors in USA in 1987 (Riding The Wild Bull
by Koepp, Fowler & Reingold, Time, Jul 27) says, “While individuals control nearly two-thirds of all stocks, or about $2 trillion worth, institutional investors turn over the remaining third at such a rapid pace that they account for 80% of all stock transactions.”

Why can’t something like that happen here? In fact, I’d suppose the chances are higher, given our data illiteracy (mistaking 5% of transactions for 5% of investors) and our penchant for playing with other peoples’ money.  Has anyone actually counted, assuming all transactions can be traced?

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