Has retail participation come back into the markets? Balaji Rao of Karvy Stock Broking, Samir Chag, CEO of Elegant Equity and Nirav Ashra, Branch Head of Unicon, believe that though retail participation is back in action, small investors are still worried and hesitant to make fresh investments.

Investors are more cautious and have now realized the importance of strategies in the market, they say. They give their views on midcaps, IPOs, the market and the mood of the investor there.

Excerpts from CNBC-TV18's exclusive interview with Balaji Rao, Samir Chag and Nirav Ashra:

How is the mood in Bangalore? Have you actually seen an uptake in retail participation these past few weeks?

Rao: There has been a good rally in the past two months. Last week, we have seen 500-600 points rally on the Sensex. The mood has been quite upbeat, as retail investors have definitely come back into the market. They used to stay invested in whatever they had earlier and they are continuing with those stocks.

We have been telling them that they should be with frontline stocks and track the Sensex as it is moving. Their participation is definitely back in the market, which was seeing a lull during the last two months.

Over the last few days, have you seen a lot of retail investors getting back into those midcap, smallcap kinds of stocks again? Has the mood started improving at all in Rajkot?

Chag: As far as small investors are concerned, though the market rose 30% from the downside, they are still worried and they are a bit hesitant to take fresh positions. Most of the retail investors are in a dilemma whether this rally can be sustained or not. So they are keen to get out of the stocks in which they are held up, especially midcaps. Most of them are shuffling themselves from the midcap to the largercaps. We too advise our clients to be in frontline stocks for the long-term.

Is it that people basically want to exit on rallies in midcaps that they are stuck in and that they are not loading on fresh positions in midcaps and smallcaps now?

Chag: When the market fell, almost all the midcaps were down 50%. And they are not yet at their normal rates, but still people are not exiting or creating fresh positions in midcaps. What I feel is that small investors are now learning a lesson about the markets and they are not that aggressive as they were earlier.

What has your experience been with your retail clients, particularly on this midcap and small cap space that they hold?

Ashra: I suggest people should stay in midcaps. That is because sectors like cement and steel in midcaps are looking very good for the long-term. So our investors are basically in midcaps for the long-term.

Can you quantify what you have seen in these past few weeks or even this last month? Are existing investors increasing their exposure to the market, or are you actually seeing new retail investment coming in?

Rao: Normally, when markets fall like this, people get into a gloom. After the very big fall that we saw in May, now the market has been going up. Investors have also been getting back into the market, though not in a very aggressive way. But they are coming back into the market in a decent way after this rally of 1500 points.

In the last one-week, we have been giving good calls on some midcap stocks. In the next two-three weeks, midcaps are definitely going to do well. So we are suggesting that after their exposure to largecaps, investors should start investing in some good midcap stocks.

People have taken this fall in their stride. So as we go forward, I think people's participation will definitely get back into the market, better than what it was before May.

Are volumes improving because after the correction, volumes had dipped quite a bit, both for smallcaps and midcaps. During the last one week, have you got the sense that people want to trade more, are volumes showing that?

Chag: Volumes are picking up gradually, but most of the people are not ready to keep their positions open. Especially if you ask me in Futures and Options, the strategy of the investors has totally changed. Earlier in our outstanding positions, 95% people were keeping their positions open in Futures, now it is just more than 50% people keeping their positions open in Options.

They are applying their strategies now and so they understand that in this market, you cannot deal haphazardly. The importance of the strategy is now being realised by investors.

How has the retail participation in the futures markets, in specific, been?

Ashra: Basically what we have observed here in Ahmedabad is that people have been investing into futures and they are benefiting from it.

Do you see a lot of churn happening now? People who might have been stuck in midcaps earlier, are they getting out of those stocks and trying to move to other stocks that are moving faster?

Rao: Before May, people bought a lot of stocks at high prices. There were some good stocks among them that fell about 20-30%. So with that fall, it was not prudent for them to get out as long as those stocks were fundamentally good. So we never advised them to get out of any of the good midcap stocks.

But we have made them exit a few of them, which were not into the specific category. Now again, since the valuations have become attractive, they have again started buying stocks in those categories.

How has participation been in terms of the primary market? Are retail investors still interested in what's been happening in IPOs and do they want to subscribe to them?

Chag: The participation in IPO market has drastically reduced and people are now not keen to apply for IPOs or NFOs. They have realised that all IPOs and NFOs are not worth applying.

So more people are now focusing on value based buying from the secondary market. We always advise our clients to remain in good stocks, good midcap stocks and largecaps stocks and in good sectors.

Has the mood improved because after that correction, the feeling that one got is that people were so disgusted, they didn't want to look at the stock market? Has that changed a bit in the last couple of weeks?

Chag: Definitely, the mood has improved. People are now again coming back to the market, but they are more cautious about investing. But yes, the mood has definitely changed and people are looking back at the market.

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