Non-institutional investors motivated by greed, immune to fear, says Kotak

So far, all negative domestic developments, such as higher capital gains, hike in STT or the election verdict, have been disregarded.

"Was the sharp correction in the past two session a blip or a flip?" asks  Kotak Institutional Equities.

On August 2 and August 5, the benchmark indices tumbled over 3.5 percent as troubling data and statistics emerged from the global markets.

The markets reacted sharply, but it remains to be seen if the correct will result in non-institutional investors or retail investors changing their stance (a flip) or ignoring the developments (a blip).

"Non-institutional investors, the primary force behind Indian markets, have been hitherto motivated by ‘greed’ (of high returns) while being immune to ‘fear’," said Sanjeev Prasad of KIE.

Also Read | What to be greedy about amid the heightened fear in markets?

According to Prasad, with the behaviour of current market participants, it is not easy to ascertain if the correction will result in cautiousness from retail investors.

Non-institutional investors have been the primary drivers in the share markets as a result of their price-insensitive investment approach, investing directly or via SIPs/mutual funds. So far, all negative domestic developments, such as higher capital gains, hike in STT or the election verdict, have been disregarded.

To this effect, even 'bad news', such as US recession fears,  Israel-Iran tensions, and the sharp appreciation in the yen may not be enough to dent the confidence of non-institutional investors.

"However, the most innocuous events can change investment sentiment: some ‘investors’ may decide that they have made enough returns in ‘narrative’ stocks with little valuation support," said the report.

Alternatively, some may want to protect high returns of the past 3-4 years and others may simply follow others ‘out’, as they have followed others on the way ‘in’.

Valuations are still challenging. Compared to the historical multiples and bond yields, the narrow market indices can seem fair. However, most non-financial Nifty 50 constituents currently trade at expensive multiples, relative to their own history.

The extent of ‘richness’ in multiples is accentuated in broader markets, across most buckets of consumption, investment and outsourcing, with financials being the only exception. Meanwhile, narrative stocks continue to trade at ‘frothy’ valuations, despite the recent correction in
some of them, added Kotak.

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