Investing strategy: Will Retail investors catch up with FIIs?

Sensex (Bombay Stock Exchange Index) is heading towards earlier highs but retail investor still seems
to be perturbed about their investing strategy. There are large numbers of retail investors who
complain that when they invest market goes down and when they sell market goes up. In contrast,
FIIs have been successful in generating good returns on their investments. Key to successful
investing strategy of FIIs seems to be buying at lower levels and selling at higher levels which don’t
seem to be the case with Retail investors. Retail investors invested at high levels and divested at
lower levels

The comparative analysis from Q1i of 2006-07 to Q3 2009-10ii of net buying/ (selling) position of FIIs
and Retail Investoriii shows that FIIs have invested in sync with Sensex.

FII Net Retailers Net

buying/(selling)P buying/(selling)
osition Position Sensex
Period ($ Million) ($ Million) Changes
Q1 2006-07 -2,875 595 -5.95%
Q2 2006-07 999 -968 17.39%
Q3 2006-07 1,120 -4,651 10.70%
Q4 2006-07 -270 -2,370 -5.18%
Q1 2007-08 40 -2,612 12.07%
Q2 2007-08 2,607 -5,146 18.02%
Q3 2007-08 -2,739 -984 14.73%
Q4 2007-08 -8,171 2,075 -21.14%
Q1 2008-09 -4,802 549 -13.95%
Q2 2008-09 -4,947 4,422 -4.47%
Q3 2008-09 -4,402 2,042 -24.98%
Q4 2008-09 -1,905 594 0.63%
Q1 2009-10 4,245 -5,490 49.29%
Q2 2009-10 1,647 9,421 18.17%
Q3 2009-10 1,305 5,772 1.97%
Source : Calculated based on data provided by www.bseindia.com

FIIs were the net seller when market was going down and net buyer when market was heading north
except for two quarters. They were selling in the third quarter of 2007-08 and fourth quarter of
2008-09 when market return were positive. Here also, FIIs don’t seem to be wrong as they sold
when market was at its high in third quarter of 2007-08 and Sensex was down for the first two
months of fourth quarter of 2008-09 and it bounced back only in last month of quarter and it gained
very meagre relative to last quarter. Analysis of the last four cycles of Sensex confirms the belief of
investing asymmetry between FIIs and Retail investorsiv.

FII Net Retailers Net

buying/(selling) buying/(selling) Ending
Position Position Starting sensex Phase
Period ($ Million) ($ Million) Sensex Level Level Type
June'06 - Jan'07 $2,198 -$1,188 10,609.25 14,090.92 Up
March'07 - Nov'07 $1,286 -$2,252 13,072.10 20,286.99 Up
Dec'07 - Feb'09 -$25,574 $2,384 19,837.99 8,891.61 Down
March'09 - Dec'09 $7,047 $2,002 9,708.50 17,464.81 Up
Source : Calculated based on data provided by www.bseindia.com

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 Investing strategy: Will Retail investors catch up with FIIs?

With this analysis, we can infer that Retail investors behave differently than FIIs and most of the
time to their disadvantage. They do not sell when market is at higher levels and do not buy when
market is at lower levels. FIIs were net buyer of $ 2,198 million in first phase. Retail investors were
net seller of $ 1,188 million during the same period with net selling position in most of the months
covered in this time periodv. In Second phase of analysis, FIIs were net buyer of $ 1,286 million with
net selling position of $3,002 millionvi when Sensex was at peak of the cycle. Retail investors were
net seller of $2,252 million for the same time period in almost all months of second phase except
last month when Sensex was at peak, they had net buying position (buying at higher levels) of $ 156
million. In third phasevii, when Sensex was plummeting, FIIs cashed out by having whopping net
selling position of $ 25,574 million whereas retail investors were net buyer of $2,384 in same period.
FIIs sold heavily most of the time when market was at its peak.

In the rally which started from the month of March 2009, The Retail investors seems to be following
a bit different way of investing than was exhibited in last 3 cycles. They seem to be investing in
symmetry with market movement but still far behind the FIIs and putting themselves at
disadvantage as they did in previous peaks and trough phases of our analysis period. From March
2009 to Dec 2009, FIIs were the net buyers of $7,047viii million and Retail investors were net buyer of
$2,002 million.

Though, Retail investors are still far behind the FIIs but they are making smart move with investing in
tandem with market conditions. Retail investors are investing at good time but they should not hold
back when it’s time to cash out. If they time their investment well they can catch up with the FIIs
and will be winners otherwise they will be losers as they were always in history.

i
Quarter as per Indian Accounting year April to March
ii
Data source for the article is www.bseindia.com
iii
Retail investors data include Clients, NRI and Proprietary
iv th
Data converted at exchange rate of Rs. 45.6052/USD as on 9 march 2010
v
Annexure – Phase I
vi
Annexure – Phase II
vii
Annexure – Phase III
viii
Annexure – Phase IV

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 Investing strategy: Will Retail investors catch up with FIIs?

Annexure – Phase I – June’06 to Jan’07

FII Net Retailers Net

buying/(selling) buying/(selling)
Position Position Sensex
Period ($ Million) ($ Million) Level
Jun, 06 $174 -$6 10,609.25
Jul, 06 -$135 $105 10,743.88
Aug, 06 $447 -$49 11,699.05
Sep, 06 $687 -$268 12,454.42
Oct, 06 $686 -$241 12,961.90
Nov, 06 $667 -$451 13,696.31
Dec, 06 -$233 -$328 13,786.91
Jan, 07 -$95 $50 14,090.92
Total $2,198 -$1,188

Annexure – Phase 2 – March’07 to Nov’07

FII Net Retailers Net

buying/(selling) buying/(selling)
Position Position Sensex
Period ($ Million) ($ Million) Level
Mar, 07 -$117 -$200 13,072.10
Apr, 07 $380 -$164 13,872.37
May, 07 -$41 -$143 14,544.46
Jun, 07 -$298 -$266 14,650.51
Jul, 07 $1,725 -$557 15,550.99
Aug, 07 -$2,705 $233 15,318.60
Sep, 07 $3,587 -$805 17,291.10
Oct, 07 $1,758 -$507 19,363.19
Nov, 07 -$3,002 $156 20,286.99
Total $1,286 -$2,252

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 Investing strategy: Will Retail investors catch up with FIIs?

Annexure – Phase 3 – Dec’07 to Feb’09

FII Net Retailers Net

buying/(selling) buying/(selling)
Position Position Sensex
Period ($ Million) ($ Million) Level
Dec, 07 -$1,495 $135 19,837.99
Jan, 08 -$6,457 $608 17,648.71
Feb, 08 -$888 -$133 17,578.72
Mar, 08 -$825 -$20 15,644.44
Apr, 08 -$556 -$29 17,287.31
May, 08 -$1,468 -$118 16,415.57
Jun, 08 -$2,778 $267 13,461.60
Jul, 08 -$1,010 $206 14,355.75
Aug, 08 -$1,196 $392 14,564.53
Sep, 08 -$2,742 $372 12,860.43
Oct, 08 -$3,432 $355 9,788.06
Nov, 08 -$1,197 $187 9,092.72
Dec, 08 $227 -$94 9,647.31
Jan, 09 -$1,134 $196 9,424.24
Feb, 09 -$621 $60 8,891.61
Total -$25,574 $2,384

Annexure – Phase 4 – March’09 to Dec’09

FII Net Retailers Net

buying/(selling) buying/(selling)
Position Position Sensex
Period ($ Million) ($ Million) Level
Mar, 09 -$150 -$126 9,708.50
Apr, 09 $1,219 -$42 11,403.25
May, 09 $3,045 -$1,242 14,625.25
Jun, 09 -$19 $80 14,493.84
Jul, 09 -$299 -$100 15,670.31
Aug, 09 -$826 $72 15,666.64
Sep, 09 $2,772 $2,094 17,126.84
Oct, 09 $0 -$139 15,896.28
Nov, 09 $375 $656 16,926.22
Dec, 09 $930 $749 17,464.81
Total $7,047 $2,002