Retail sells September rally, buys October dip

livemint.com:

Subscribe to enjoy similar stories. When markets fall, buy. And when they rise, sell.

The retail investor seems to have taken this adage to heart. But while this approach has been rewarding for them in the past four and a half years, experts say it could hurt this time as the current pullback could be sharper and last longer, and warn against what they call “recency bias". In September, when markets hit record highs, retail investors net sold ₹8,380.15 crore on NSE’s secondary market.

And when markets have come off the highs in October (the Nifty has fallen 5.5% to 24399.4 so far this month), coinciding with rising US bond yields ahead of the US elections and deepening tensions in the Middle East, they have turned net buyers of ₹18,591 crore, NSE data shows. As recently as 4 June, the day of the national election results, which saw the BJP fall short of forming a government on its own, the Nifty tanked 5.9% from 23,264 in the previous session to 21,884.5. That day, retail investors net purchased shares worth a whopping ₹21,179 crore and the Nifty recouped all its losses three days later to close at a fresh high of 23,290.15.

(To be sure, this data pertains to direct investments in stocks by retail investors, and not through mutual funds.) “This behaviour points to recency bias," said Jimeet Modi, founder & CEO of Samco Securities. “In the past four or more years, investors have seen buying a dip pays as market pullbacks or corrections have tended to be shallow or short-lived and markets have hit new highs shortly after the decline." Analysts, however, warn that this time, the decline could be longer or sharper with several factors coming together such as macroeconomic uncertainty or a slowdown in earnings growth. For