Boring Nifty forcing thrill-seeking investors to hunt greener pastures

MUMBAI: The Covid-19 storm that made landfall on Dalal Street in March 2020 has been followed by a sudden dullness a year later.

Despite a second wave of the pandemic and numerous restrictions on economic activities in the June quarter, the Nifty50 index has failed to rise or fall more than 2 per cent in a single day since mid-April. The streak is the longest for the index since the closing months of 2019 when an 8 per cent rally post cut in corporate taxes was followed by three-month dullness.

Unlike in 2019, when investors had nowhere to go but stick with the blue chip stocks to ensure safety of their capital in an economy witnessing a steady slowdown, this time they have sought to head lower down the market capitalization ladder to seek bigger returns.

Retail investors, also referred to by many as Robinhoods, have been particularly aggressive in seeking out stocks beyond the blue chip pack of Nifty50. Retail investors raised stakes in as many as 254 Nifty500 index stocks during the quarter ended June, the highest since the September quarter of last year.

The aggressiveness among retail investors despite the concerns surrounding the economic and well-being of the country was similar to the June and September quarters of 2020-21, when retail investors drove Indian equities despite a raging first wave of the pandemic.

While retail investors bought two in every three stocks that are part of the Nifty500 index, they trimmed their stakes in one of every two stocks that belonged to the Nifty50 pack.

Retail investors weren’t the only ones seeking harbor beyond the top 50 stocks of the Nifty50 to protect the handsome returns generated prior to the onset of the second wave. Domestic mutual funds, too, aggressively bought stocks in the Nifty500 index while trimming exposure to Nifty50 stocks.

In the three-month period ended June, domestic mutual funds trimmed their exposure to Nifty50 companies by 20 basis points to 8.3 per cent. In the meantime, they raised stake in 224 out of 439 stocks part of the Nifty500 index.

In hindsight, the move by both retail investors and domestic mutual funds ended up being an inspired one, as Nifty500 rose nearly 10 per cent in the June quarter against Nifty50’s 7 per cent gain.

Analysts believe this migration of investors away from the top 50 index companies and towards the broader market will accelerate in the coming months, as earnings growth returns in a robust way after years of stagnation.

“We believe as economic recovery gains traction over the next couple of years, earnings growth in the broader market over the latter part of FY21-23 will be robust and are expected to be higher than Nifty50’s growth,” brokerage firm

said in a recent note.


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