Do it yourself

The benchmark Nifty is down about 15% from its October 2021 closing high of 18477. A broader gauge of the market performance Nifty500 is also down by a similar proportion. However, anecdotally I find that damage to the investors’ sentiments is much worse than what this extent of correction in these indices might be suggesting. There could be multiple reasons for the investors’ despondency. For example— ·           Most of the popular trades of 2020-21 that have attracted a whole lot of new investors/traders to the equity markets have lost materially. The Covid trade (Pharma, healthcare); New listed IT enabled businesses like ecommerce platforms and Fintech; popular disinvestment candidates; PLI beneficiaries; self-reliance and import substitution (Specialty chemicals, electronics) have sharply underperformed the markets. A large number of these stocks have corrected 25-75%. The non-institutional investors have a tendency to chase popular trad...

The benchmark Nifty has gained more than 22% during the one month of lock down. The broader market indicator Nifty500 has also gained by similar margin. This counterintuitive trend may be perplexing many market observer. I am however not surprised by this sharp rally of past this month. In fact I believe that this rally may even extend little further in May. In my view, this is a classical bear market rally in which the stocks are distributed to a large number of non institutional participants, popularly referred to as retail investors. A significant distribution takes place in the poor quality stocks, which are usually difficult to sell if the markets are falling. As you would observe from the following table, on 14 out of 21 trading session between 23 March and 24 April, the institutional investors and insiders have been net sellers. They have sold a net amount of Rs12676cr of equity on NSE itself. The domestic institutional buy of Rs8420cr is roughly equal to the am...