Retail investors sell Rs 23,000 crore in two months as markets rally

Retail investors are moving away from a buy-and-hold approach and towards more informed short-term positioning, recent investment patterns show.

Over the past two months — a period of sharp rebound in Indian equities — retail investors have been net sellers in the cash market even as they have continued buying indirectly through mutual funds.

In October, the benchmark Nifty rose 4.5 per cent, the Nifty Midcap 100 gained 5.8 per cent and the Nifty Smallcap 100 added 4.7 per cent.

November saw the Nifty and Nifty Midcap 100 extend gains, while the Nifty Smallcap 100 slipped 3 per cent.

Yet retail investors sold equities worth Rs 23,405 crore across October and November.

This trend has persisted through the year: Retail investors typically have turned net sellers when the benchmark indices advanced and net buyers when markets corrected.

The tactical retreat from direct equities stands in contrast to continued inflows from domestic institutional investors (DIIs), led by mutual funds.

Other DIIs — insurance companies and pension funds — also channel retail savings through SIPs, premiums, and long-term retirement schemes.

“This shows retail investors are becoming smarter with their short-term bets. Historically, flows would rise in a bull market and reverse in a downturn.

"One reason for the shift could be that mid and smallcaps are now in their fifth consecutive year of gains, unlike previous cycles when the rally would fade after the third year.

"Even recent corrections have been shallow and quickly reversed,” said G Chokkalingam, founder of Equinomics.

Some analysts attributed the selling to investors exiting lossmaking or overvalued positions.

“If retail investors bought overvalued shares, they often exit at either a marginal loss or small profit when markets turn buoyant.

"They also sell long-term holdings where they believe little value remains, or when they need liquidity for personal purposes,” said Deepak Jasani, former head of retail research at HDFC Securities.

Jasani added that post-listing exits also inflate retail selling data.

“A large number of retail investors exit in the first few days after listing, and that shows up as retail sales.

"IPO allotments do not reflect on the buy side. Moreover, recent news has unnerved some investors, prompting them to cut direct exposure and shift towards mutual funds,” he said.

Some market experts believe the headline retail and mutual fund flow numbers may not fully capture the underlying behaviour, cautioning that retail outflows during market rallies may be driven by financial stress rather than tactical calls.

“We assume retail investors allocate equally to direct equities and mutual funds, which is not always the case. Someone who actively trades may invest very little in mutual funds, and vice versa,” said Ambareesh Baliga, an independent equity analyst.

Baliga added that many retail investors have struggled to generate returns recently.

“In the last three to four months, markets have risen but many individual portfolios have continued to fall.

"Instead of deploying fresh money, investors may be taking profits whenever they can.

"When they’re losing money, they hold on to lossmaking positions, sell the profitable ones, and avoid adding new investments,” he said.