High or low, Indian retail investors are getting wiser about riding the equity market wave
- Retail investors are becoming better when it comes to investing in equity markets.
- Data shows that retail investors have put the ‘buy low, sell high’ strategy to good use during the last three years.
- They have also become more mature, as shown by an over fourfold increase in systematic investment plans (SIP) from ₹3,100 crore in April 2016 to ₹13,041 crore in October 2022.
AdvertisementRetail investors are becoming smarter at investing in the equity markets. While timing the markets is difficult, data shows that retail investors have put the ‘buy low, sell high’ strategy to good use during the last three years when there were three significant downturns.
The biggest of these falls in the Indian equity markets was induced by the Covid-19 pandemic when markets crashed by over 30% between February and March 2020.
Since then, the benchmark Nifty50 index has more than doubled, going from a little over 8,000 points in April 2020 to over 18,000 in November this year. Markets fell once again in October 2021, giving retail investors another chance to plough in more money.
“Over the last few years, domestic mutual fund investors have invested higher amounts when there is a fall in equity markets. On the other hand, whenever there is a rally in equity markets, investors have turned cautious and invested lower amounts at higher levels,” said a report by ICICI Direct.
Buy low sell high – A difficult strategy at which retail investors are getting better
Domestic mutual fund investors have put in more money when the equity markets fell – for instance, monthly inflows in domestic mutual funds nearly doubled to ₹8,500 crore from ₹4,500 crore after the Covid-19 pandemic-induced market crash in March 2020.
When the Indian equity markets were rallying to all-time highs during August to October 2021, mutual fund inflows were around ₹3,000 crore levels, the report added.
The Nifty50 hit a fresh all-time high of 18,338 in October 2021 – there was a correction of over 16% from then to June 2022. In this period, domestic mutual fund inflows increased by over fivefold to ₹15,500 crore.
On the other hand, when markets rallied, retail investors booked profits, reflecting in the mutual fund outflows – after the post-Covid rally, mutual funds witnessed monthly outflows of ₹5,850 crore between July 2020 and February 2021.
More recently, the Nifty50 has gained 5% between August and October 2022 – retail investors have identified this and the mutual fund flows have fallen from the ₹15,500 crore levels to an average of ₹5,900 crore in this period.
However, retail investors are not infallible – according to the report, they ended up selling early in July 2020 while the Nifty continued to rally till February 2021.
Retail investors are getting smarter and more mature
Market sell-offs can result in panic selling, and while that still happens, retail investors have shown themselves to be more mature. This reflects in the increase in the systematic investment plans (SIP) – in the last six years, SIPs have increased over fourfold – from ₹3,100 crore in April 2016 to ₹13,041 crore in October 2022.
Even during the Covid-19 pandemic when India VIX (volatility index) shot up to record levels of 70.39 in March 2020, SIP flows remained consistently above ₹7,500 crore levels, according to data from the Association of Mutual Funds in India (AMFI).
“We strongly believe that while the domestic financialisation story is well acknowledged, the maturity and smartness of retail investors is underappreciated. This maturity among wider retail investors will ensure stable and consistent domestic inflow into the Indian financial sector and equity markets in particular,” the ICICI Direct report said.
Underlining the importance of stable domestic inflows is the fact that while foreign institutional investors (FII) have pulled out ₹2.77 lakh crore from the Indian equity markets in 2022 so far, domestic institutional investors (DII) have invested ₹2.56 lakh crore.
AdvertisementFIIs have been net sellers in 9 out of 11 months, while DIIs have been net sellers in only two months so far. During this period, the benchmark Nifty50 index has gained 4.3%, far outperforming global peers.
Source: Morningstar, as on November 24, 2022
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