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Published on: Aug. 24, 2020, 2:42 p.m.
Retail investors gate-crash the party
  • A new dawn? Photo Credit: Sanjay Borade

By Daksesh Parikh. Executive Editor, Business India

Rationality has been a big casualty during the pandemic. Investors have been buying like there is no tomorrow. On the back of FII money, which continues to pour into equities, retail investors have also made a big comeback. The total demat accounts as per the latest NSDL count have crossed two crore with the total amount of shares traded collectively in July amounting to Rs2.95 lakh crore. The total investments in the custody of these accounts is Rs190 lakh crore.

It is not just the retail investors. FPIs have also started pouring in money. Part of it is due to counter the huge sales made in March and April, but the total inflows in August seem to indicate that fresh investments are also being made in a big way. August has till date (21) seen the highest monthly FPI inflows of Rs40,262 crore. Due to these sharp inflows the total FPI year to date has become positive at Rs29,312 crore. Are investors just riding on hope or do the markets know something which defies logic?

It is true that the Indian economy is slowly trudging on the recovery path and the government is trying to galvanise the animal spirit among industrialists. Nature has been bountiful, in some cases over-bountiful, with many states still reeling under floods. However, kharif sowing has been better than normal by far and agriculture growth is expected to be good in FY21. And expectations are that consumer demand, particularly in the rural sector, will be buoyant. However, investors seem to be totally ignoring the geopolitical problems in India and in Asia. Nor are they taking account of the gnawing deficit with the government’s spending – and rightly so – on the needy.

Midcap and small cap outpace Sensex in August

As against the earlier expectations that the pandemic will be controlled soon, investors are now switching their hopes on an imminent vaccine. While the first half has been a washout for most sectors, the jury is still out on the second half of the current fiscal year. Many brokerage houses have started advising clients to exercise caution at higher levels. The more so as the market rally is now shifting to the midcap and small cap with the Sensex and nifty rally showing signs of slowing down. While the Sensex has gone up by four per cent in August, midcaps have gone up by 8.8 per cent and small caps have gone up by 10.5 per cent. This further buttresses the point that retail investors are joining the rally and buying non index shares.

  • August saw a sharp spurt in the share prices of companies with facilities for producing defence goods

Some sectors have recovered faster than others. IT being one. Infosys made a five-week high on 31 July and is currently ruling around Rs950. TCS likewise made a 52-week high as did HCL which made a 52-week high on 13 August. The other sector which was relatively unaffected by Covid-19 was the packaged food sector. Emphasis on hygiene and attraction towards big brands saw many companies in the industry reporting a better performance. Share prices reached a high of Rs4,005 in August with shareholders being rewarded with an interim dividend of Rs83 on shares of face value Re1. The record dividend was on 27 August.

During August, post the defence ministry’s announcement of giving orders to indigenous defence manufacturing companies, there was a sharp spurt seen in companies which have facilities for producing defence goods. The announcement of a budget of Rs52,000 crore for the procurement in FY2021 with a total of Rs4 lakh crore orders to be given over the next few years, saw prices of several PSU and private companies rise in August. BEL gained 18 per cent to close at Rs112 on 21 August, BEML gained 12 per cent to Rs719 while Hindustan Aeronautics gained nearly 40 per cent and touched a 52-week high at Rs1,423 on 14 August before closing the fortnight at Rs1,211. Amongst the private sectors, L&T made a monthly high of Rs1,025, Bharat Forge gained 28 per cent in the first three weeks of August and M&M made a 52-week high.
 
Sugar rules firm

A rally in sugar companies was also seen following the good rains and the not too heavy burden imposed by the hike of cane prices of sugar. The government recently increased the cane prices of sugar by Rs10 per quintal to Rs285 for a recovery of 10 per cent. Besides sugar, most sugar companies have also started manufacturing ethanol which is used as an additive with automobile fuel. Dalmia Bharat Sugar made a 52-week high of Rs150. Triveni Engineering, Dhampur Sugar and Dwarikesh Sugar were all ruling firm.

Speciality chemicals, which enjoy a good market overseas, continued to rule firm. Atul made a 52-week high of Rs5,829 on 21 August. The company, which recorded the highest EBIT and ROE of 34 per cent is going ahead with its capex plans of roughly Rs500 crore. Bayer Crop Science made a high of Rs6,449 on 7 August. The rally is not limited to only large companies.  Balaji Amines (market cap Rs2,800 crore) saw its share prices double from those prevailing on 1 January 2020. Aarti Industries made a 52-week high in August. The company has said it is well on track with its capex projects worth Rs1,000-1,200 crore.

Given the not so rosy economic outlook and fears of geopolitical problems still looming large, the rally may well see investors seeking out non-index shares. With small caps and midcaps gaining strength, investors need to guard themselves against operator-driven fake rallies. As it is, fears of fake deposits given by brokers to custodians is rearing up. While the overall exposure of brokers may not result in systemic problems, fears still persist, with SEBI also getting into the act. It is advisable to keep on booking some profit and retaining some cash in hand to benefit from a downfall. Corrections are likely to happen and keeping investible surplus makes sense.

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