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 amount of monthly SIP flows (of retail investors).
During this period, the market breadth has been positive on 16
out of 21 days, and significantly positive on 10 days; implying that relatively
smaller shares have participated more in the rally. If we consider the sharp up
move in the volatility and higher than average volume (price & qty) it
becomes clear that a smart distribution pattern is developing, that may
continue further since the net amount of stock offloaded so far is less than
US$2bn.
The smaller investors must make a note of this trend and be
careful in their investment approach.
