According to market participants, retail investors tend to increase positions when markets
are at historical peaks. Both the Sensex and Nifty have retreated more than 34 per cent from their recent peaks in January.
Besides heavy mark-to-market (MTM) 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 a larger quantum of shares for the same cost of investment,” said an 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 — 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 has shrunk Rs 170 core. In Reliance Power, the investment value has dipped by Rs 124 crore.
Market observers say that many retail investors have a wrong approach to assessing a company’s valuation. “Several investors see the absolute share price as an indicator of the company’s valuation, rather than factoring in fundamental parameters to gauge the value of a firm,” Chokkalingam added.
Experts also say retail participation could see a dent as the Covid-induced lockdown
adds to pressure on cash flows of individual investors.
“Retail investors have once again burnt their fingers in the current market meltdown, but participation could recover as they’d look to make good the losses. However, investors who are facing a liquidity crunch with income from other sources coming under pressure will take some time to come back,” said Deepak Jasani, head (retail research) at HDFC Securities.