Retail investors using the selloff to buy stocks: Zerodha co-founder

Zerodha co-founder Nikhil Kamath says retail investors are using the dip as an opportunity to buy stocks. In this interview, however, he warns that a fund manager might have the patience and the wherewithal to hold on to a loss making position but retail is more sentimental.

Can you explain the reasons behind the nervousness in the market?
There has been quite a bit of a froth in the market, considering the manner in which we have rallied ever since the pandemic last year. With the second wave of Covid coming a bit later than elsewhere in the world, it seems to be significantly kind of bearing down expectations in the market. Nobody knows the scope of what will happen with Covid in the coming days, but the amount of worry in the market has significantly gone up.

Did you see a lot of retail margin calls kicking in?
No margin calls as such. The regulator has done a good job of reducing leverage in the market, so no structural issue as such. The fact that we have more people investing directly versus coming through a fund manager or a fund house as one might have expected traditionally. When there is a 5-10% correction, retail investors react a lot faster than a fund manager would. A fund manager might have the patience and the wherewithal to hold on to a loss making position but retail is more sentimental. So I think that could also change the dynamics of the market. A 10% fall in the market could very easily trigger the next 5-10% correction.

Will we see another couple of days of consolidation or selloff kicking in?
Retail seems to be buying more into the correction. I think we are seeing value in the correction. The market may be a little overvalued considering the multiples we are trading at now versus the historical average at which largecap and midcap companies trade at. But retail is using the dip as an opportunity to add allocation.