The sharp market sell-off has taken a heavy toll on direct equity investments of retail investors, with latter seeing value of their investments eroding nearly Rs 3 trillion in current calendar year.
Data sourced from Capitaline shows that at the end of December 31, 2019, retail investors (investors with upto Rs 200,000 of investments in individual capacity), held Rs 9.84 trillion worth of investments in over 3,000 listed on the exchanges. The value had shrunk to Rs 6.87 trillion as on April 3, 2020. Only actively-traded stocks were considered for the analysis.
“Retail investors have seen their investments getting hammered across sectors and stocks. Most of such investors have tendency of building large positions when valuations are expensive and face sharp hits on their portfolios during such bear markets,” said G Chokkalingam, founder and managing director of Equinomics Research and Advisory.
According to market participants, retail investors tend to increase positions when markets are at historical peaks. Both the frontline indices such as Sensex and Nifty have retreated more than 34 per cent from their recent peaks in January.
Besides seeing heavy mark-to-market losses in blue-chip stocks such as Reliance Industries (-Rs 20,751 crore), HDFC Bank (-Rs 18,687 crore), Larsen & Toubro (-Rs 14,266 crore), Housing Development Finance Corporation (-Rs 10,621 crore) and Bajaj Finance (-Rs 8,235 crore), retail investors have also been caught off-guard in penny and low-price stocks.
Market participants say low-priced stocks attract retail investors as they expect lower downside in such counters, and sharp upside on signs of recovery.
“Retail investors eye such counters as they can pick-up larger quantum of shares for the same cost of investment,” said analyst at a broking house.
An investment of Rs 200,000 in a stock trading at Rs 10, will fetch 20,000 shares, whereas the same investment in a stock trading at Rs 100 would fetch 2,000 shares.
In South Indian Bank -- which is currently trading at Rs 5 -- the value of retail investments has shrunk by Rs 330 crore. In Vodafone Idea, the investment value for retail investors is down Rs 170 core. In Reliance Power, the investment value is down Rs 124 crore.
Market observers add several retail investors have wrong notion of assessing a company’s valuation. “Several investors see absolute share price of the company as indicator of company’s valuations, rather than factoring in fundamental parameters to gauge value of a company,” Chokkalingam added.
Experts say retail participation could see a dent as Coronavirus-induced lockdown has put pressure on cash flows of individual investors.
"Retail investors have once again burnt their fingers in current market meltdown, but retail participation could still come back as they'd look to make good the losses. However, those investors that are facing liquidity crunch with their other incomes sources under pressure in ongoing lockdown, will take time to come back," said Deepak Jasani, head-retail research at HDFC Securities.