Coronavirus impact: Retail investors see Rs 3 trillion hit on investments

Experts say such investors build large positions when markets are at historical peaks

The sharp sell-off in the markets has taken a heavy toll on direct equity investments of retail investors, who have seen the value of their investments erode by nearly Rs 3 trillion in CY20 so far.

Data from Capitaline shows that at the end of December, retail investors (those with up to Rs 200,000 of investment in individual capacity), held Rs 9.84 trillion worth of investments in over 3,000 listed firms on the exchanges. The value had shrunk to Rs 6.87 trillion as on April 3, 2020. Only actively-traded stocks were considered for the analysis.

“Retail investors have seen investments getting hammered across sectors and stocks. Most of them have the tendency to build large positions when valuations are expensive, and face sharp hits on their portfolios during such bear markets,” said G Chokkalingam, founder and managing director of Equinomics Research and Advisory.   

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.