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.