It has been a long and exhausting bear run. But, at last, there are unmistakable signs that retail investors are returning to try their luck on the stock market.

Take a look at what is happening at e-broking site, ICICI Direct, where investor participation is up 35 per cent. It's the same story at Kotak Mahindra Securities which says there's a 25 per cent increase in retail volumes.

The figures are telling. Last year, the daily volume traded (both online and offline) at SSKI Securities was around Rs 200 crore (Rs 1 billion). These days, it touches Rs 250 crore (Rs 2.5 billion) easily and is rising.

So is the retail investor coming back to the bourses? "Retail investors are back in a big way," says Anup Bagchi, chief operating officer, ICICI Web Trade. At ICICI, daily orders have zoomed from 27,000 two months ago to 36,000 today.

The BSE 30-share Sensex which was at 3,262 on June 5, closed at 3,354 on Friday, up 92 points. Says Bandi Ram Prasad, chief economist and general manager at the Bombay Stock Exchange, "The market is looking more attractive today."

Adds D Kannan, senior vice president, head retail at Kotak Securities, "The signs are obvious. Both volumes and the number of clients trading with us have gone up considerably."

Until six months ago, Manish Shah, head, retail sales & broking at Motilal Oswal Securities barely had two or three daily appointments with clients.

Today, his schedule is choc-a-bloc with back-to-back client meetings. They are all high- and mid-networth individuals who Shah is wooing for trading with the broking firm, which claims to have one of the largest retail bases in the country. He claims that there is big pressure at all of Motilal's 150 retail outlets.

Already, aggregate volumes traded are up from around 400 crore (4 billion) shares in April to 500 crore (5 billion) shares last month. In the same period, the percentage of shares delivered to total shares traded has inched up from 26 per cent to 34 per cent in May.

"It is not the FIIs or the mutual funds. The difference is largely made up by the retail investors," says S T Gerela, director business development at the BSE.

But what is obvious is that with tempting valuations, especially for mid-cap stocks like banks, retail investors at least for the moment are approaching the markets directly rather than the mutual fund routes, says brokers.

Look at the week's foreign institutional investors and mutual fund activity. The FIIs' net buying and selling was Rs 776 crore (Rs 7.76 billion) as of June 11. In a selling spree, the mutual funds' net was a negative Rs 18 crore (Rs 180 million).

So even as total inflows have risen from Rs 79,464 crore (Rs 794.64 billion) in March this year to Rs 89,238 crore (Rs 892.38 billion) in April, the mutual funds are not displaying any overt optimism.

"After a long hiatus, there's been a slow and steady trickle in equities," says S Nagnath, chief investment officer and joint president, DSP Merrill Lynch Mutual Fund.

At Tata TD Waterhouse Mutual Fund, chief executive officer Ved Prakash Chaturvedi says that inquiries for equity funds have gone up by 20 per cent.

"It is a matter of time before the retail investor returns to equity funds in a big way. I'm very bullish," he adds.

Adds Sethuram Iyer, CIO, State Bank of India Mutual Fund, "The equity market is picking up but it has not made a significant difference to mutual funds."

That's because most of the action, at least in the last two weeks, has been taking place in small cap stocks outside the BSE-500, say market makers.

"The minute your midcap stocks move, then all-round retail interest is generated," says Rahul Rege, head of retail sales at sharekhan.com, SSKI Securities' web trade business.

What's luring investors back to the market? The answer is a host of factors. First, there is the overall growth in economy. Also, the abolition of the dividend tax in Budget 2003 has once again made investing in the stock market worthwhile.

"There is a feeling that the markets have bottomed out and the trend is up and sticking. The more this trend continues, better it is for the market," says DSPML's Nagnath.

Adds SBI's Iyer, "The market is correcting itself to realities. Initially, the rally began with mid-cap and low-cap stocks. Now it is going up the chain."

Also aiding this is the general corporate news flow which has been heartening. Corporate India which has been restructuring financially and operationally for the past few years has seen its valuations touch rock bottom.

But belying expectations, the sales and profit growth of many companies has been satisfactory. "On one hand, the fundamentals are robust. Then, for many companies, their valuations are cheap. All in all, it makes many scrips attractive," says a broker.

Then, with diminishing interest rates, investment avenues are few and far between. With capital depreciation, even returns from debt funds, which were the flavour earlier, have been more muted.

"Add to that signs of a favourable monsoon, and the sentiments are positive," says Chaturvedi.

Such sentiments also come at a time when over the last 18 months, some IPOs have given admirable returns.

For instance, the open offer for Divis's Laboratories in February this year was Rs 140. It closed on Thursday at Rs 385.20. I-Flex Solutions saw its offer price of Rs 530 in June last year almost double to Rs 908.85 two days ago.

Canara Bank opened at Rs 35. And its current price is quoted at Rs 96.10. Union Bank which opened at Rs 16 is now quoting at Rs 33.30. Or Punjab National Bank, which tripled its share price in just five months.

Going by the upsurge in bank scrips, Reliance announced a Banking Fund, which closed on May 22. It plans to invest in equity, equity-related or fixed income securities of banks.

Or take the more recent sell out of the Maruti Udyog issue. The government has put up 72.2 million shares of the Indo-Japanese car maker for sale and the issue was sold out in just three hours.

Just what kind of interest the issue evoked was evident in the demand for application forms. Sharekhan's Rege says that at first, its Baroda branch barely displayed any interest in the IPO.

But four days before countdown, with swelling investor interest, there were requests for at least a 1,000 IPO forms. Says a broker, "It could be herd mentality, but going by the response, it is as if IPOs had never gone out of fashion."

But this time round, brokers claim that investors are more cautious. Motilal Oswal's Shah was surprised by one franchisee's request.

The franchisee said that a prospective client wanted him to recommend two textile and auto ancillary stocks, which are the current flavour on the bourses.

Earlier, clients just wanted us to double their money. Now with awareness, they are asking for specific sectors.

That's because, investors are privy to a surfeit of information on companies. Research reports brought out by broking firms, which earlier went only to clients is now freely available.

"The information dissemination is huge. We have such a huge network that we feel obliged to see that the retail investor picks up quality stocks," says Shah.

Investor expectations too have been scaled down, say brokers. If earlier they wanted their money to double in six months, today, retail investors are talking of a one to two year frame for capital appreciation.

Kotak's Kannan, however, begs to differ. "Caution and risk do not go together. Return expectations are as high, but investors today are much better informed," he says.

And to serve to this client, broking houses and even the BSE have taken time out to spruce up and improve communications with investors. For one, outfits like SSKI, Kotak and ICICI are leveraging their online presence to grow the business.

SSKI has 28 branches and 128 franchisees. Ninety per cent of its volumes come from its on-the-ground network. The rest is accounted for by its trading portal Sharekhan.

Kannan says that Kotak Securities too is driving for maximum retail participation in each of its markets.

"When you trade through the Net, you offer a superior facility to the consumer," he adds. That's why, its portal offers a range of products from derivatives, mutual funds to IPOs.

Motilal Oswal Securities is setting up a mid-cap desk concentrating on the BSE-500. It has also increased communication to its clients.

Eight months ago, it started a monthly newsletter to all its current and prospective clients recommending stocks and giving the general state of the market. Earlier, such endeavours, if any, were done through intermediaries.

At the same time, there is some action to replenish the research teams. "This bear run has been the most tiring, it sapped you completely driving you to virtual disinterest," says Sharekhan's Rege. He is adding two more analysts to his research team.

Even the BSE has been constantly holding seminars to educate investors. Last year, it held workshops in 100 cities focusing on investment safeguards. Its 26-episode investor education serial on Zee launched last year is coming to a close.

Clearly, there is growing optimism about the market. Brokers cite figures to show that many more will rush to the market. They claim depository accounts which are currently 0.5 per cent of population will grow by at least 25 per cent.

Shah is the most optimistic as he says, "The interest rates have been the big kicker. What happened to housing loans a decade ago will happen to the stock markets." Is that wishful thinking?