Retail investor outflows hit 7-year high in April-May
MUMBAI : Retail investors directly participating in India’s largest stock exchange, the NSE, have been offloading shares at a rapid pace, despite the sharp rally in the market in recent months.
Cumulative net outflows in April-May was at ₹150 billion, the highest in seven years for the corresponding period even as the bellwether Nifty 50 index rose by almost 7% in the first two months of this financial year to 18,534.4.
Zerodha co-founder Nithin Kamath’s tweet on Friday saying high T-bill and FD rates preclude investor interest in equities reflects this trend.
“I keep telling our team that our competition is the bank’s fixed deposit rates, and not our peers. Retail investors question whether taking the added equity risk is worthwhile when government bonds and FDs yield 7%-plus,” he tweeted.
“Historically, the momentum tends to be lacking when T-rates are high, because retail investors stay away,” Kamath said in an interview. On the prospects of retail investors returning to the market now that RBI has paused the rate cycle for a second time earlier this month, he said: “It still means we are plateauing, and not going down, so rates will remain elevated.”
Kamath said the higher cost of money results in investors taking a risk-off attitude. “This means a move away from risky assets such as equities to government securities, gold and fixed deposits.”
The rally in the Indian market closed at an all-time high of 18887.6 on 1 December. This surge was primarily due to the 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 purchased shares worth ₹71,875 crore, after selling shares worth ₹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 stay at its comfort level of 4%. “Retail investors will not be able resist the market breaking out of range. While their count is increasing, a more substantial shift may happen around H2FY24,” he added.
RBI has raised rate at which it lends to banks by 250 basis points to 6.5% over 12 months. It paused in April, and earlier this month, while maintaining its withdrawal of accommodation stance.
FPIs are gung-ho on Indian earnings prospects , with Nifty 50 EPS estimated to grow to ₹1,116.30 by FY24-end from ₹824.71 now. This will result in earnings catching up with valuations, raising the attractiveness of the markets.
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Updated: 18 Jun 2023, 09:38 PM IST
