MUMBAI : Retail investors participating directly in India’s largest stock exchange, the NSE, are offloading shares at a rapid pace, despite the sharp rally in the market in recent months.
Cumulative net outflows in April-May were at ₹150 billion, a seven-year high for the corresponding period even as the bellwether Nifty 50 index rose nearly 7% in the first two months of this financial year to 18,534.4.
Zerodha co-founder Nithin Kamath’s tweet on Friday shows that high T-bill and FD rates are hampering investor interest in equities in this trend.
“I always tell our team that our competition is the bank’s fixed deposit rates, not our peers. Retail investors question whether it is worth taking the extra equity risk when government bonds and FDs yield 7% plus,” he tweeted.
“Historically, momentum is missing when T rates are high, because retail investors stay away,” Kamath said in an interview. time earlier this month, he said: “It still means that we are registering high, and not going down, so rates will still rise.”
Kamath said that higher cost of money leads to risk perception by investors. “This means a shift away from risky assets such as equities to government securities, gold and fixed deposits.”
The rally in the Indian market closed at a record high of 18887.6 on 1 December. This boom was mainly due to a buying spree by foreign portfolio investors, excited by the prospects of high growth and cooling commodity prices. Adding to the positive sentiment, retail inflation rose 4.25% in May, at the slowest pace in 25 months. In FY24, FPIs bought value shares ₹71,875 crore, after selling value of shares ₹37631.57 crore in FY23 and ₹1.4 trillion in FY22.
Rajesh Palviya of Axis Securities expects RBI to cut rates in the second half of the financial year, if inflation continues to remain at its comfort level of 4%. “Retail investors will not be able to resist the market break. Although their numbers are increasing, a more significant change may occur around H2FY24,” he said.
RBI raised the rate it lends to banks by 250 basis points to 6.5% over 12 months. It stopped in April, and earlier this month, while maintaining its withdrawal accommodation position.
FPIs are gung-ho on Indian earnings prospects, Nifty 50 EPS expected to grow ₹1,116.30 by FY24-end from ₹824.71 now. This will result in earnings catching up with valuations, increasing the attractiveness of the markets.
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Updated: 18 June 2023, 09:38 PM IST
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