Session-wise data indicates small investors have taken money off the table in more sessions than they have pumped in additional capital.
The ratio of the number of sessions that witnessed net buying to those with net selling has been on the decline for such investors in recent times. It has dropped below 1x for the last two months in a row.
This indicates they have taken money off the table in more sessions than they have pumped in additional capital. Net sales on the two exchanges stood at Rs 7,821 crore in September.
The analysis is based on client data from the BSE and the NSE. The analysis of data from the country’s two major bourses focussed on activity by investors other than foreign portfolio investors and domestic institutions. Brokers trading on their own books, too, have been excluded. This is largely seen covering retail investors and high networth individuals.
The sales may be reflective of some profit-booking, according to Satish Menon, executive director of Geojit Financial Services. He said this was only during brief periods of upside, such as when Finance Minister Nirmala Sitharaman announced measures to give a fillip to the economy, including tax cuts for corporates.
Most investors remain stuck after having bought at higher levels, according to him, and await an improvement in price levels.
“Markets are bad,” he added.
Ashish Shanker, executive vice-president and head (investments) at Motilal Oswal Wealth Management, said many retail investors have invested in small and mid-cap companies in hopes of high returns based on past performance.
This segment of the market has declined sharply, which has resulted in higher risk aversion among retail investors. This may help explain the recent behaviour, too.
“It has to do with the experience over the last two years,” he said.
The numbers were different even a year ago. They were net buyers in three sessions, for every session of being net sellers, in October 2018. The last year has seen significant decline since then in confidence, as measured by this indicator. The ratio has stood below 1x for seven of the last twelve months.
It was 0.8 in August 2019. It fell to 0.7 in September 2019.
The action in direct equities is in contrast to investments in the mutual fund space. Systematic investment plans -- monthly investments made by largely individual investors into equity funds -- have increased over the last year.
The month of September saw Rs 8,263 crore coming in through this route. It was under Rs 8,000 crore in the same period last year.
This contrast may also reflect the greater institutionalisation of markets. Investors prefer to invest through institutions such as mutual funds, according to Shanker, rather than come in directly.
He said regular investments would have cushioned investors from the recent market turbulence. Investors would have relatively higher returns, as opposed to those who might have invested a lump sum before the decline.
Returns would also be bad outside the few stocks that have driven up index levels, according to another market expert.
Photograph: Shailesh Andrade/Reuters.