New investors flock to lesser-known scrips

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The record-shattering bull run in the stock market has not only pushed the key indices to their life-time highs but also widened the ambit of actively-traded stocks. Entry of new investors and existing traders, who look for better returns, are exploring newer and less-exposed stocks.

According to BSE data, of the total universe of listed scrips , the number of actively-traded stocks has constantly gone up over the last few months. From about 2,900 stocks in April 2019, the number of actively-traded stocks has gone up to 3,300 in August 2020 and further to 3,527 stocks in December.

“During a bull market, retail investor participation increases. Also, when spectacular returns from the stock market become headline news, new investors enter the market driven by the FOMO (fear of missing out) factor, which is happening now,” VK Vijaya Kumar, Chief Investment Strategist at Geojit Financial Services said, adding, “Also, many investors are trying their luck with small-caps since large-caps have become expensive.”

 

The ‘sudden spike in retail investors participation since the Covid’, ‘large investors aversion towards overheated stocks’ and ‘availability of newer stocks after a series of IPOs in the Indian market’ are some of the reasons attributed for the increase in the number of actively-traded stocks over the last few months.

According to SEBI data, close to 6.3 million new demat accounts have been opened during the April-September 2020 period, an increase of 130 per cent on a year-on-year basis.

Kranthi Bathini, equity strategist at WealthMills Securities, said the increase in the number of actively-traded stocks cannot be purely attributed to new investors entering the market.

“The small and mid-cap stocks were butchered in the last two to three years due to various reasons, so people are finding value in these stocks and that’s why the activity is going up. Clearly, value buying is happening at the bottom of the pyramid right now,” Bathini added. While the broader S&P BSE Sensex has recovered over 75 per cent from its March lows to close at 45,553.96 points on Monday, S&P BSE MidCap and SmallCap indices have risen around 76 per cent and over 91 per cent, respectively, during this period.

Penny stocks

Highlighting that ‘Trade from Home’ during Covid times has facilitated the increase in retail participation, Geojit Financial’s Vijaya Kumar, however, cautioned that retail investors, particularly the new entrants, are trading in low-grade stocks, which can often lead to wealth destruction rather than wealth creation.

“Fifty per cent of India Inc’s net profit comes from 50 companies in five segments. Smart investors should focus on these stocks in performing sectors. Trading in low-grade stocks is not a desirable and healthy trend,” he added.



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