Time to be cautious: Hyper active retail investors, DIIs driving the markets to new highs

Since the market is at record highs and valuations are high, FPIs are likely to press sales in the coming days. Though the FIIs have been sellers in the cash market, it didn’t impact the market at all since it was neutralised by DII buying of Rs 10,230 crore in September. “Hyper activity by retail investors is also contributing to the bullishness in the market. The ongoing market rally has taken the Nifty to rich valuations. At the current level, Nifty is trading at above 20 times estimated FY earnings,” Vijayakumar said.

In August, retail investors pumped in Rs 20,245.26 crore into equity mutual funds, a rise of 165 per cent over July. This money is being deployed in the stock markets, aiding the bull rally. A section of market analysts opines that too much money is now chasing stocks.

On Friday, the BSE’s Sensex rose for the 11th straight trading sessions, gaining 319.63 points, or 0.47 per cent, to end at 67,838.63. This is the longest streak of gains for Sensex since October 2007. The broader Nifty 50 continued to gain for the third consecutive session to end at an all-time high of 20,192.35. The 50-share index gained 89.25 points, or 0.44 per cent.

Kotak Institutional Equities in a recent report said that there are no fundamental reasons for the meteoric rise in the stock prices of many mid-cap and small-cap stocks in the past few months. “The primary driver of the rally appears to be irrational exuberance among investors, with high return expectations (and purchase decisions) being driven by the high returns of the past few months,” the report said.

“We are dropping our recommended mid-cap portfolio since we cannot find too many stocks beyond the BFSI space that offer decent potential upside to our 12-month fair value,” it said. Against a Sensex rise of around 14 per cent since April 1, 2023, the mid and small cap indices have risen by over 37 per cent and 43 per cent respectively.

Apart from strong retail and DII push, strong global cues are also adding to the bullish fervour.

According to a Bank of Baroda report, global indices ended higher as investors’ monitor strong macroeconomic data from across the globe. Supported by better-than-expected data (higher retail sales and marginal increase in weekly jobless claims) US indices climbed higher.

“Besides firm global market cues, investors are anticipating a halt in rate hike by the US Federal Reserve in the next week’s policy meeting amid moderating inflation, which would augur well for local markets already witnessing a strong upsurge,” said Amol Athawale, Vice President, Kotak Securities. A status quo on rate hikes would further bolster investors’ sentiment as this would give a further leg up to the economy on hopes of softening interest rate stance going ahead. A drop in US treasury yields have resulted in a recovery in world equity markets and also had a rub-off effect on local markets.

China’s economy signalled early signs of recovery on the back of better-than-expected data led by improvement in retail sales (4.6 per cent from 2.5 per cent in July 2023) and industrial output (4.5 per cent from 3.7 per cent in Jul’23). However, fixed investment moderated marginally. Additionally, US retail sales also climbed higher than anticipated (0.6 per cent as against earlier estimate of 0.1 per cent).

Separately, ECB raised rates by 25 bps to a record high to 4 per cent and signalled the end of rate tightening cycle. It has also trimmed growth forecasts for the next 3-years down to 0.7 per cent in CY23 and 1 per cent in CY24.

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