Faith erosion in stock markets

"How come you lost money in the markets?" The Mumbai-based Gaurav Shah faces this question from every friend and relative. The 29-year-old institutional equity manager with a Mumbai-based brokerage struggles to convince his inquisitive well wishers that working around the markets provides no immunity to an investor.

When Gaurav started investing beginning in January 2007, the markets were passing through a super-bull phase. His portfolio, which comprised random stocks, rose by 70 per cent during that time before tanking 50 per cent after the Lehman Brothers collapse in September 2008. In June 2009, when the Indian equity market recovered after the UPA government came to power, Gaurav sold his stocks - not all at profit. "Quality stocks make you less poor, "Gaurav realised.

Today, Gaurav's portfolio has a mix of frontline stocks of the likes of Larsen &Toubro, Housing Development Finance Corporation, HCL Technologies and Reliance Infrastructure. But his portfolio is still down 37 per cent. "But at least I have better quality stocks, "Gaurav frowns.  But to some extent the pain of 2008 is no different in 2011. "The price damage is more severe now than it was in 2008."

And Gaurav is just one face in a crowd of more than 3 crore retail investors in India. On an average, their portfolios are down by 60 to 70 per cent. The gravity of loss varies with the stock selection. Between January 3 and December 23, 2011, retail investors in BSE Sensex, BSE Mid-Cap, and BSE Small-Cap stocks lost 14.6, 43.4 and 40.5 per cent respectively. The decline is calculated on the market value of the retail shareholding of the index companies reported in December 2010 and September 2011.

So what is Gaurav planning now? Capital protection is the mantra he is chanting. "I will not invest a single rupee in equity unless I come across a very convincing opportunity," says Gaurav.  He has gradually shifted his attention to bonds which currently offer higher yields. "Bonds constitute 20 per cent of my portfolio now," says Gaurav. And the zero to 20 per cent shift has happened over the last three months.

And it is not that the likes of Gaurav, who invest in the secondary market, are the only ones taking the brunt of the beaten down market. Thirty-three-year-old Parveen, another finance professional based in Mumbai, has been an avid primary market investor through initial public offerings or IPOs.  When the government divested its stakes in Power Grid Corporation, Parveen was allotted 398 shares at Rs 85 each. Despite the market turbulence the stock quotes at Rs 100, and Parveen is in the money. But Parveen is not happy investing 1 lakh in PTC Financial Services - another PSU divestment.

Thanks to the fairly lower investor turnout, Parveen got complete allotment of over 3700 shares at Rs 27 each. Subsequently the stock has been a constant under-performer and quotes little over Rs 10, the face value. Parveen's investment in PTC Financial Services is down by over 62 per cent."My blind faith in a PSU company is a reason for the loss," says Parveen." But the power sector has its own woes which have come to surface in 2011," she adds.

More than the money it is the faith of investors which has seen erosion in 2011.