Dalal Street may test retail investor resilience if equity returns stay dull in the next six months, according to analysts, after staying so for 6-7 months now.
Retail investors perhaps expect high returns from the market and are acting on their ‘positive’ expectations by investing aggressively directly and through mutual funds, said Kotak Institutional Equities.
Data showed registered investors on BSE topped the 10 crore mark this month and stood at the 10.13 crore mark at the last count. SIP accounts reached 5.17 crore by February, with SIP inflows (including debt) standing at a strong Rs 1,12,238 crore for the ongoing financial year.
FPIs equity outflows, on the other hand, stood at Rs 1,42,216 crore for FY22 so far.
“We would assume they (retail investors) are looking at the same earnings and valuations as FPIs. It would be interesting to see the investment behaviour of retail investors after a ‘long’ period of low returns from equity markets (say, flat markets for 12 months if the market was to stay flat for another 5-6 months),” it said.
This is especially when the return expectations from other asset classes such as bank deposits and real estate increase from current low levels, Kotak said.
Short term hiccup possible
“I feel quite nervous right now,” Samir Arora of Helios Capital told ET NOW, who added that he is not comfortable with the current levels of the market.
Arora said he is confused and thinks the market may soon respond to some of the ongoing negative developments globally.
“Sometimes investors get carried away in the short term and the best example I can give is in 2008 where the market would be up 8-10 per cent every second or third month. We, at that time, thought it was all done and dusted before realising the markets have some of these violent pullbacks. I believe that we are not just discounting this year, but also earnings of FY23 and FY24, which normally, I do not believe we do,” Arora said.
Transient or behavioral change?
Niraj Kumar, CIO, Future Generali India Life Insurance, said that there are questions over whether the retail flows are transient and will revert when the economy recovers or it is earmarking the beginning of a behavioural change.
What we are seeing is not a flash in the pan but could turn out to be a secular change, Kumar said.
In an interview with ETMarkets, Kumar said the litmus test for retail investors would be when they actually see significant drawdowns in their portfolio.
“These new investors have not seen any downturn or panic. How they react during these testing times will actually decide if this is the new cult or just a fad. A key factor leading to retail participation is the lack of other lucrative investment avenues. With SIP holding up at strong levels, we believe retail investor participation will continue and are likely to have a sizable portion of the total investments going forward,” Kumar said.
Kumar said one also needs to be cognizant of the fact that DII flows are not just from retail investors but are also from institutions such as provident funds, NPS etc, which are investing significant amounts of money in markets.
“As their corpus grows over the next few years, their investments will grow and bode well for the market. It is important for retail investors to focus on asset allocation and build a balanced and diversified portfolio by capitalising on attractive alternate investment avenues,” he said.
