The cold response of household investors to the ~8% rally in
Indian equities in past six weeks has apparently intrigued many pundits. The
rally is characterized by persistently low volumes, poor market breadth, low
volatility, implying total lack of greed or fear.
On the positive side, it implies that this rally may
continue much further than most of us anticipate as so called weaker hands are
not participating. On the negative side, it lacks any foundation and is always
susceptible to a sudden crash like January 2008.
In traditional sense, we may neither call it “Pain Rally” –
since no one was interested in investing even at lower level; nor it is a
relief rally – since the mid and small cap stocks or laggard mutual funds with
which household investors are still saddled have not participated much in the
rally. Our discussion with some investors suggests that it is not even a regret
rally – for those who sold stocks or redeemed their MF investments a few weeks
earlier.
The so called retail investors have obdurately refused to
participate in publically traded equities’ market in past few years. In
particular, post 2010 the household participation in listed equities has
declined sharply.
We had highlighted in our four part series on household
investors’(see I, II, III,
IV)
the reason for participation of household investors (or lack of it) in stock
markets. We do still not see them coming back in a hurry.
The surprising part is that this is not true only for a emerging
market like India with all its imperfections and scams. Only 52% of American
households now have money invested in the stock market, down from 53% a year
ago and 62% five years ago. This is historically quite low.
(Source: Zero
Hedge)
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