retail investors: Are retail investors finally out of fuel to invest in the equity market?

NEW DELHI: An iconic television commercial for Maruti Suzuki had a punchline: Papa ki kara?… Petrol khatam hi nahi hunda (Dad, what should I do? Petrol is still in the tank)! The retail inflow in the cash market ever since the March 2020 crash has also followed the punchline – it has not fizzled out.

Lately, though, data suggests they could be running out of steam.

A Motilal Oswal report says average daily cash volumes increased 11 per cent month-on-month to Rs 71,100 crore in March 2022. However, non-institutional cash volumes (read: retail) are below 50 per cent for the first time since March 2020.

In fact, they are in the downtrend for the second month in a row. This coincides with increasing risks for investors in the market due to cruising inflation and possible monetary tightening ahead. Moreover, the market is again becoming expensive.

So, should we read too much into this data? Analysts say, not really.

Gautam Duggad, the analyst who wrote the Motilal Oswal report, said it is not right to see a trend in retail inflows based on a couple of months of data.

G Chokkalingam, the Founder and Managing Director at Equinomics Research and Advisory, said the data could just be a blip in the radar as the flows have been good. He expects the trend to continue as new investors are still coming in, and even supporting the market when institutional investors turn sellers.

After a bout of correction and then low level buying, Nifty has again become expensive compared to its long term average valuations. The Nifty now trades at a 12-month forward P / E of 20x, which is at marginal premium to its long period average (LPA).

The 12-month trailing P / E for the Nifty stands at 24x, 20% higher than its long term average. At 3.6x, the 12-month trailing P / B stands at 21 per cent above the historical average of 2.9x.

“As we step into FY23, we believe the next two quarters are going to see a sharp margin impact and corporate commentaries will worsen before it gets better,” said Motilal Oswal.

While the Nifty has not seen much earnings downgrade so far, the broader universe is clearly bearing the brunt of commodity cost inflation – a trend which was visible even in the 3QFY22 corporate earnings season.

“We expect market volatility to remain high in the near term, amid global developments. However economic recovery coupled with government focus on capex and domestic manufacturing would drive overall growth in FY23, ”the broker said, adding it is positive on IT, select BFSI, commodities, retail, real estate, defense and telecom for FY23.

Motilal has also recommended some stocks that it prefers at this time.

Largecap: Infosys, ICICI Bank, SBI, Wipro, HCL Tech, L&T, Tata Motors, HDFC Life, Dabur India, Godrej Consumer and Apollo Hospitals.

Mid & smallcap: Canara Bank, Jubilant Food, SAIL, Ashok Leyland, Dalmia Bharat, Zee Entertainment, Whirlpool, ICICI Securities, GR Infra, Zensar Tech, Mahanagar Gas and Transport Corporation.

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