Is this the end of retail investor optimism?

Indian stocks are going on a rough path. Investor sentiment is in a sluggish phase amid high inflationary pressures and fears of a slowdown. The data shows that not only have foreign inflows slowed down, individual investors are also retreating. Just 1.8 million demat accounts were opened in June, a 16-month low, and much lower than the 2.9 million accounts per month in the previous year. Actual retail investment also saw a decline: the share of retail in total trade in the National Stock Exchange capital markets fell from 40.7% in 2021-22 to 36.7% in 2022-23 as of June. In May, the stock declined 440 basis points (bps), though it retreated slightly in June.

Both the indicators of retail activity—demat account and share in turnover—have shown unprecedented growth during the pandemic, until the market peak in October 2021. However, industry experts do not see any imminent slowdown. Prateek Pant, Chief Business Officer, WhiteOak Capital AMC, said, “Near-term trends could be volatile and a decline in subscriber numbers should not be seen as early signs of slowing retail participation.”

Head of Research at LKP Securities S. Ranganathan, citing the listing of Life Insurance Corporation of India in May, attributed the decline to the increased base, which prompted many to open demat accounts in the run-up. “If we take those figures as a basis, we are bound to conclude that new accounts are opening, but in our view this is not the correct way to look at retail participation in equities,” he said.

shifting focus

Where are individual investors putting their money? The latest shareholding data gives mixed signals. In the BSE 500 universe, 45% of stocks saw individuals reduce their holdings in the June quarter, of which nearly two-thirds saw a fall of up to 68% during the period.

While the overall retail stake in BSE 500 stocks rose 10 bps to 7.3%, small-cap stocks, which are usually preferred by retail investors, saw a slightly opposite churn, as shareholding fell from 12.3% on March 31 to 12.2 as of June 30. % happened. Meanwhile, individual investors maintained their love for blue-chip stocks for the third consecutive quarter, increasing their stake in Sensex companies by 20 bps.

Sunil Nyati, managing director of Swastika Investmart, sees it as business as usual. “During the current turbulent times, mid- and small-cap companies see the most volatility; That’s why individual investors take refuge in large-caps.”

recent improvements

The previous bull run attracted many new retail investors, but usually, they are the first to succumb to volatility. No wonder the retail pullout was also reflected in the segment-wise performance of the stocks.

The small-cap segment fell 12.1% on the BSE during the June quarter, which was higher than the decline seen in the mid-cap segment (10%) and the Sensex (9.5%). (Domestic equities have recovered, and in July the Sensex ended in the green for the first time in four months.)

Experts said long sell-offs deter retail investors from staying in, so it is good that some of them are cautious in the small-cap segment.

“The current times are tough and there is a possibility of a storm in the financial market,” Nyati said. But this storm will have a major impact on speculative and high-value investments or properties, he said.

Fixed SIP

Meanwhile, an increasing number of systematic investment plan (SIP) accounts are showing a spurt, which hit 55.4 million in June, higher than the previous high of 54.8 million hit in May. Monthly contribution to SIP remained up, even in challenging macroeconomic environment and weak market sentiment 12,000 crore in June, largely stable on a month-on-month basis and up 34% over the year-ago period.

True, according to the data released by the Association of Mutual Funds in India, the number of new SIPs registered in May and June has come down. But the overall positivity on this front cannot be waned right now. Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC, said, “The trend of the last two months should not be construed as impacting the long-term expected growth in SIP registrations. The recent market volatility may have affected the sentiments. , They said.

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