Recent correction in equity markets hurt retail investors the most

Retail m-cap in the total listed universe has reduced by Rs 1.81 trillion, or 9%

The recent correction in equity markets has pinched retail investors. The retail market capitalisation (m-cap) in the total listed universe has reduced by Rs 1.81 trillion, or 9 per cent, from the all-time highs the Sensex hit on October 18.

If one considers the domestic m-cap, i.e., retail plus domestic institutional investors, the figure comes to Rs 5.1 trillion — a decline of 9.2 per cent.  From the September quarter, the fall is Rs 53,742 crore.

Domestic institutional investors largely include insurance companies and mutual funds, who typically are money managers for retail investors in the equity segment.

Concerns over valuations after the indices hit new highs, fears about the Omicron variant taking hold, and interest-rate hikes sent foreign portfolio investors (FPIs) on a selling spree from October onwards. The benchmark index has corrected nearly 8.8 per cent, from its highs in October.

FPIs have sold close to Rs 36,869 crore since October. In the last seven sessions, the decline was 4.2 per cent, when it became apparent that central banks were going to turn hawkish by prioritising fighting inflation.

Retail investors, especially those who came to the market in droves and cashed in on the bull run after the March 2020 lows, have borne the brunt of this sell-off. Analysts have expressed concerns about whether the new bunch among retail investors will stick.

“There will be some set investors who joined in the last 18 months — they will start struggling. A set will not exit and, in fact, use the opportunity to buy,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

Ambareesh Baliga, an independent market analyst, said retail investors who lose money stop investing afresh.

“After a while, they get tired and exit. This happens during every market cycle. This time, the numbers could be much more,” said Baliga.

First-time investors and millennials have become active since the imposition of the lockdown. Many are investing in what they consider high-beta stocks based on tips, without paying much attention to the valuation parameters or other fundamentals.

“There are many small-cap stocks without much revenue or profit, but the stocks have multiplied. It is wrong to assume that if one buys low-denomination shares, they multiply. It works somewhat in the bull market, and retail investors become more aggressive. Investing in these stocks is akin to playing Russian roulette,” said Chokkalingam G, founder, Equinomics Research & Advisory.

Further, analysts cautioned retail investors from taking leveraged positions and putting money into these penny and small-cap stocks.

“They should look at management quality, history of rewarding shareholders, and see if there is value in the stock,” said Chokkalingam.

Analysts said retail investors who have incurred losses should take a long, hard look at the prospects of their holdings and take appropriate decisions.

“One should take professional help and exit the ones where all hope is lost. Where there are chances of the stocks going up, they should hold,” advised Baliga.