Individual investors likely behind latest market uptick, suggests data

Nifty has risen 10% since June 15 despite FPI selling and muted MF buying

Individual investors are the likely force behind the latest market rally. Sample this: The Nifty50 index has rallied 10 per cent since June 15 and during this period, and foreign portfolio investors (FPIs) —considered to be the main drivers for the markets — have sold shares worth nearly Rs 5,000 crore. The buying by mutual funds, which normally offset the selling by FPIs, too, remained muted at less than Rs 2,000 crore for the period under consideration. 

The sharp gains in many stocks without strong institutional buying have surprised many on the Street. This, coupled with a drop in institutional investors’ share in turnover, has led many to believe individual investors — both small and high net-worth individuals (HNIs) — are spurring the markets.

“The data seems to suggest retail investors are driving the markets up. This can be seen in the sharp increase in the opening of new investor accounts, the rising share of non-institutional participation, and activities via the internet and mobile-based trading. Not just in India, this appears to be the case in countries, such as China, and South Korea,” said Abhiram Eleswarapu, head of India equities, BNP Paribas. “Institutional investors, on the other hand, seem unanimous in their view that the markets may have overheated somewhat.”
 

From the coronavirus-triggered lows of March 23, the Nifty has rebounded 42 per cent. Experts said the fear of missing out (FOMO) is another factor that is driving retail participation. 

 

 

“Once retail investors are convinced that this move is not going to end soon and is going to get broader in terms of participation, they jump in. Non-institutional and other retail investors, directly or through portfolio management services schemes (PMS schemes), have become active,” said Deepak Jasani, head of retail research, HDFC Securities.

Analysts said first-time investors and millennials have become active in the markets since the imposition of the lockdown. Many are investing without much fundamental basis, they add.

“A lot of people are sitting at home and have plenty of time to trade. Most of these retail investors do not look at any valuation parameter or other fundamentals, they see the price and take a position,” said G Chokkalingam, founder, Equinomics.

Though it has largely been a one-way Street for the markets since March lows, experts say it remains to be seen how the new crop of investors behave once the tide turns. “This (heightened retail participation) usually happens during the fag-end of the rally,” said Jasani. 

Chokkalingam said: “We do not have enough depth to absorb FPIs selling of $5-10 billion.” Whether this rally continues depends on the shocks the markets will face in the next two-three weeks, said analysts. “If there is a sharp reversal in the next couple of weeks, retail investors will be saddled with all the stocks at high valuations. They may step back and choose not to come back in a hurry,” said Jasani.

Analysts cautioned retail investors should refrain from taking leveraged positions and putting money in penny and small-cap stocks without looking at fundamentals. And carefully select stocks in a staggered manner if they are underinvested.

“If they are fully invested in equities, it is a good time to take a hard look at your portfolio and weed out stocks that have risen beyond their intrinsic value, and raise some cash,” Jasani said.

Indices end tad higher; Nifty reclaims 10,800 mark

The Sensex and Nifty came off the day’s highs but managed to end the session a tad higher on Monday, with gains in Reliance Industries negating losses in financials, especially HDFC twins. The BSE gauge Sensex settled 99.36 points, or 0.27 per cent, higher at 36,693.69. The Nifty closed 34.65 points, or 1.15 per cent, up at 10,802.7 — losing about 80 points from the day’s high. PTI