Who is worried about Nifty, Sensex volatility? No, not the investors

The cash segment's combined average daily turnover has hit a 22-month peak.

Even though the Indian equity markets were highly volatile in August, with flagship indices Sensex and Nifty trading negatively, investor participation stayed robust. This was evident from the cash segment's combined average daily turnover (ADTV), which surged to a fresh 22-month peak.

The combined ADTV in August stood at Rs 79,980 crore – the highest since October 2021, and up 2.5 percent from the previous month. The August ADVT was nearly 33 percent higher from the previous 12-month average of Rs 60,000 crore. This marks the fifth consecutive month of rise in ADTV.

advt-chart

Focus on fundamentally strong stocks

Analysts said the rise in investor participation amidst modest movements in benchmark indices show that retail investors are focusing on fundamentally strong stocks that have been performing poorly.

According to Rajesh Palviya, senior analyst at Axis Securities, these midcap and smallcap stocks are showing positive changes in their business cycles, with an optimistic outlook expected to continue in the next few years.

Factors such as increased demand, better financials, fair valuations, and strong domestic economic conditions are contributing to this trend. This shift is particularly evident in the Nifty mid-cap and small-Cap indices, which are currently trading at record highs.

Analysts further said the hospitality sector has made a remarkable recovery after the COVID-19 era, signalling a revival in domestic demand that could contribute to sustained and robust macroeconomic conditions in the future.

Notable momentum was observed in sectors like chemicals, fertilisers, and paper. The star sector of the month was space and defence, particularly stocks linked to Chandrayaan-3's key component suppliers like Tata Elxsi, Centum Electronics and MTAR Technologies, Mishra Dhatu Nigam, Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Larsen & Toubro (L&T) , which saw significant buying momentum.

‘India offers good selection of stocks, sectors’

In August, Sensex and Nifty fell 1.7 percent each while BSE Midcap and SmallCap rose 2.6 percent and 5 percent, respectively.

Vinod Nair, head of research at Geojit Financial Services, said India presents numerous opportunities for selecting stocks and sectors. As a result, mid- and small-cap stocks are flourishing and attracting substantial domestic investments.

“In a structural bull market, mid-caps usually witness buying interest from market participants. Since we are in one such phase, we expect such momentum to continue, going ahead," said Ruchit Jain, lead research analyst – 5Paisa.

FIIs, SME initial public offerings among helping factors

A few analysts said that India is seeing robust investor participation amidst continued foreign investment in local markets. Foreign investors are reallocating investments to India's promising market, driven by challenges in Chinese equities and global uncertainties.

"We expect that the current positive trend (in mid- and small-cap segments) is going to be sustained as foreign investors are diversifying into India for stability amid global intricacies. FII selling in other markets is expected to continue due to concerns related to deflation, potential defaults within China’s realty and finance sectors, elevated bond yields in developed countries, US devaluation (credit downgrade) and many more", said Arvinder Singh Nanda, Senior Vice President, Master Capital Services.

This is accompanied by heightened activity in the mainboard and ongoing SME initial public offerings. Additionally, new investors are swiftly opening demat accounts to take part in the market rally, further boosting sentiment.

For September, analysts expect the positive momentum to continue, especially with the onset of the festive season beginning with Ganesh Chaturthi. In the upcoming month, Nifty is projected to reach a range of 19,650-19,700 on the upside, with a crucial support level to monitor at 19,000.

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