MUMBAI: Despite foreign fund selling and a rising number of Covid infections in India, the sensex has gained about 1,500 points in four consecutive sessions in July on rising hopes of a vaccine. The buying has also, to a large extent, been supported by mutual funds (MFs), and traders recently acquired by a host of discount brokerages, market players said.
With a 466-point gain on Monday that boosted the sensex to 36,487 at end of trade, the index is now near a four-month closing high. In the process, it has also recovered 65% of the loss recorded since its January 20 high at 42,274 to its March 24 low at 25,639.
Official data showed that, so far in July, while MFs have been net buyers at Rs 747 crore, foreign portfolio investors
(FPIs) were net sellers at Rs 3,338 crore. Medium-term data also showed a similar trend — selling by FPIs being neutralised by MFs’ buying. In the first six months, MFs have net infused over Rs 39,500 crore into the equity market, compared to a net withdrawal by FPIs at about Rs 18,514 crore.
Systematic investment plans (SIPs) have constantly shown inflows of over Rs 8,000 crore every month for the last one and half years, with over 90% of SIP inflows coming through equity funds. As a result, industry observers say that it were the retail investors, through the fund route, who came out to be the neutralising factor to foreign fund selling in the stock market.
There’s another tribe of small investors who are also supporting the market rally:
The predominantly day-traders who have signed up with low-cost discount brokerages and taken advantage of the ‘work from home’ (WFH) opportunities to trade heavily. On the negative side, there are fears that these new and inexperienced breed of traders may also be making the market risky for the long haul.
According to a note by Jimeet Modi, founder & CEO of Samco Securities, which is one of the leading discount brokerages, it is the retail investors — the Indian version of Robinhood traders — who are at home during this lockdown, tapping prices higher. Robinhood is the US discount brokerage that has led in acquiring in the pandemic months a large number of day-traders who are believed to be playing their part in taking the Wall Street higher.
“It is quite likely that they may also have invested in fronline stocks. Conspicuously, their high interest in penny stocks is quite visible and frightening,” Modi pointed out. “A handful of these penny stocks have also now started to reverse the trend and are hitting lower circuits. It’s time to be cautious,” Modi warned. Monday’s rally was also backed by renewed optimism about an economic recovery in China.
“Asian shares scaled four-month peaks on Monday as investors counted on a revival in Chinese activity to boost global economic growth. Also, better than expected regional economic data and elevated liquidity levels boosted positive sentiments,” said Deepak Jasani, head (retail research) at HDFC Securities. “European shares headed towards a one-month high on Monday, with a rally in China’s markets setting an upbeat tone as investors banked on the world’s second-biggest economy to lead a recovery from the coronavirus-induced slump.”