SIP | SIP Investment: ETMarkets Mid-year Survey: Bear run flushing weak hands out of D-St; SIP investors hold fort for now

Analysts in an ETMarkets Mid-year Survey said while some of these investors would surely have been shaken and may refrain from investing more into equities for now, retail flows into mutual funds via SIPs have been strong.

A handful of analysts, however, believe they may also see some slowdown, as the impact will be visible only with a lag.

Weak hands have already been shaken out, said Yesha Shah, Head of Equity Research, Samco Securities, who noted that NSE cash segment volumes are at near April 2020 levels.

“This indicates that interest in the market has significantly dropped. Further, the number of NSE stocks trading above their 200 day simple moving average (SMA) has dropped to 13.7 per cent against 96 per cent in June 2021. During the Covid outbreak in March 2020 only 10 per cent of the stocks were above their 200 SMA. So right now, the apprehension to invest fresh money seems high,” she said.

Retail investors who have not booked profits so far would have got hurt by the relentless fall in valuations, said Deepak Jasani, Head of Retail Research,

securities. If they have borrowed for investing in stocks or have gone overweight on equities in their portfolio, they would want to stay away from equity markets, he said.

“Other investors who have so far been skeptical of the rise will get a chance to enter the markets at lower valuations. However the wait for attractive levels could be long and in case they do not invest at or around the bottom, they may keep waiting for the next fall to invest. We will keep having a new crop of investors who enter the job market or start to earn year after year. However the number of new retail numbers and inflows that we got during Covid may not be easily replicable,” he said.

This market correction could be the first such period for many new investors post-Covid era, where many first time investors entered in the market either directly or through mutual fund route, said Roop Bhootra – CEO for Investment Services at Anand Rathi Shares.

“For direct equity investors, there could be some panic, especially those who are not taking help of seasoned research and advisory. However, there is any panic amongst indirect investors if you see monthly MF flows data. As far as sustainability is concerned, there are almost Rs 11,000-12,000 crore monthly SIP flows which are sticky. In the long term, we expect to see gradual increase in SIP flows,” Bhootra said.

Data showed May saw Rs 12,286 crore in SIP inflows, higher than April’s Rs 11,863 crore, taking the FY23 SIP inflows to Rs 24,149 crore. SIP flows stood at Rs 1,24,566 crore in FY22 against Rs 96,080 crore in FY21. SIP accounts stood at 5.48 crore at

At last count, there were 10.88 crore registered investors on BSE.

Across any bear market, weak hands do move out, said Pankaj Pandey of ICICIdirect.

“But we must understand that overall participation has doubled in equities in the last two years. Most of the same is led by financial awareness. Thus, as the new age investors will have awareness about various asset classes, we expect them to stick around and this, we believe will keep retail flows resilient,” Pandey said.

At the time of writing this report, the BSE Sensex was down 10.25 per cent; the BSE Midcap index has fallen 13.8 per cent while the BSE Smallcap index is down 16.72 per cent so far in 2022. Retail investors generally stay more invested in midcap and smallcap stocks.

“There is a direct correlation of retail investment with market returns. Hence there will surely be dent on retail inflows in the medium term, given many new investors will see a bear market for the first time,” said Vinit Bolinjkar, Head of Research,

Securities.

Take this process as cyclical in nature,

Securities, said that the wherein new investors are born with every bull market and with every bear market there is an end to the investment cycle of many novice investor communities.

“Post pandemic, this is the first major correction, though we won’t call it a proper bear market. Weak hands have started moving out of markets and this is not just for direct equity, but the pain will be felt soon in the form of reducing fund flows in mutual funds that have been absorbing selling shocks by FIIs. Retail flows are directly proportional to the direction of the market but with the lag effect of a couple of quarters,” the brokerage said.

There will surely be a churn, there will be a churn, said Nishit Master, Portfolio Manager, Axis Securities, who expects weak hands to move out of the market.

“This time it has got delayed because a bulk of new retail investors started investing in markets at the depth of the Covid crisis and are still in the money. But we expect some churn there. There is a high probability that retail flows start ebbing in the near future as more and more retail investors start making losses on their original invested amount. Hopefully, by that time FPI outflows also should slow down,” Master said.

Investment is an activity that requires psychological strength rather than intelligence and it is a fact that only a little percentage of investors make money in the long run, said Punit Patni of

.

“We expect that more and more weak hands will move out of the market, nevertheless, the extent of that will be less severe compared to previous bear markets as investor education and awareness has improved in recent times and investors have realized the importance of buying the dips strategy,” he said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)