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Wednesday, Jan 11, 2006


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`Retail investors concerned over volatility, manipulation'

Virendra Verma

Mumbai , Jan. 10

STOCK price volatility, manipulation and corporate mismanagement are the biggest worries for retail investors, says a study.

According to a study on "India Household Investors Survey" by Society for Capital Market Research and Development for Ministry of Company Affairs, "These problems get manifested in the erratic behaviour of the secondary market. Such market behaviour has the effect of discouraging or even driving away the genuine investors from the market."

The study was based on a sample of 5,900 investors spread over 90 cities and towns in 24 States.

The concern about price volatility and manipulation rose suddenly due to the wild gyrations of the Indian share index on May 17, 2004. Details of the study say that price volatility and manipulation taken together are the cause of worry for as many as 50 per cent of the respondents.

On corporate governance, around 50 per cent of the respondents had a negative opinion on company management and a little over 30 per cent had a positive opinion while around 20 per cent had no opinion.

The finding of the study says that majority of retail investors do not regard mutual fund equity schemes as a superior investment alternative to direct holding of equity shares. "The percentage of households who owned equity shares directly is more than 2.5 times the percentage of those who owned any mutual fund schemes," it said.

The boom since 2003 has also made investors more cautious and they are net sellers than buyers, the study pointed out.

"Having become wiser from the mistakes of the past, the retail investors have become less gullible," the study said.

"A rise in the average price-earning ratio to just 17-18 based on the BSE Sensex and the NSE Nifty companies, begins to ring alarm bell for investors and the market authorities, whereas average P/E ratio of 30-40 in early 1990s was simplistically accepted because not many market participants understood the ratio".

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