Once again Indian retail investors waiting for an opportune time to enter the markets have been taken unaware by the sudden inflow of funds by foreign institutional investors (FIIs) and rise in the BSE Sensex and NSE Nifty as in the past.
Following a strong FII inflow of Rs 5,000 crore in the first week of February, the Sensex at the Bombay Stock Exchange rose by close to 5 per cent to trade at a new high and has crossed the 22,000 mark on Monday, forcing retail investors on the sidelines to think that the markets have become expensive now and to regret about the missed opportunity.
This is not the first time that the domestic retail investors have been left behind in a market rally except for those who continue with their disciplined approach of monthly investment in mutual funds. In fact, in the pre-election rally in 2009 when the markets rallied sharply by 70 per cent in the three-month period between March and May 2009, the quantum of FII inflow during that period stood at Rs 27,115 crore while that of the domestic institutional investors stood at a low of Rs 3,087 crore. The retail participation too lagged significantly in that period.
Even in the period between April 2005 and May 2006, when the Sensex rose by more than 100 per cent to cross 12,000, the domestic retail investors did not participate and failed to gain from it.
It is an irony and has been proven time and again that retail investors have been the last to capitalise on the rise in domestic equity markets and they end up entering at a high and are seen exiting from the markets in desperation when the markets are not going anywhere and they find themselves stuck with the investment.
A recently released report by HDFC Securities captures this retail behaviour and says, “While the markets are at a new high, the investor confidence is not at a new high. On one hand, the market is making a new high and on the other hand investor’s are getting afraid of investing at higher levels.”
While the markets did not generate much return for investors over the last few years on the back of several domestic and global factors — slowdown in GDP growth, high fiscal and current account