Rising global inflation and looming debt crisis in many countries has led to a brutal fall in risk assets on Thursday and Indian markets were no exception. Thursday being a weekly expiry day, Nifty tanked 359 points or 2.22% and broke the crucial psychological mark of 16,000 with day closing at 15,808. Sensex too fell 2.14% and closed at 52,930. Whenever the market tanks 20% from its peak, it is technically termed as the Bear market. So far, the Indian market has tanked 15% from its peak in November 2021.

Panic spread in the global market after the U.S. Bureau of Labor Statistics reported on Wednesday that consumer price index for the month of April was up 8.3%. It led to a global sell-off in risk assets like equities. The crypto market too faced carnage where Bitcoin dropped below $27,000 level.

As per Discipline Funds, a foreign fund management house, Global financial market (including equity and bond) has seen a value erosion of approximately $35 trillion since the beginning of the year. The Indian market too has seen a massive value erosion, and Nifty has dropped from 18,500 levels to 15,800 levels in 2022.

Nifty fell 2.9% in U.S dollar terms in April, while FII outflows remained elevated at $3.4 billion during April, while FIIs’ year-to-date 2022 outflows crossed $17 billion.

Speaking with Fortune India, a market veteran says that foreign institutional investors (FIIs) are pulling out from the Indian market but domestic participants are not able to provide support as over ₹55,000 crore is held up in LIC IPO. The market is completely dry and will remain soft till LIC issue hits bourses on May 17.

Yogesh Kalwani, head of investments at Incred Wealth, says market is nervous as market participants think that central banks will be more aggressive as inflation is at a four-decade high. “Current market fall may force the central banks to take the measured approach in further rate hikes as negative wealth effects may create demand destruction,” he says.

Nervous retail investors — An added threat to market

Individual retail investors’ participation in Indian capital markets is at a historic high. As per a BNP Paribas report dated May 03, retail investors holding in the NSE-listed universe inched up to a 58-quarter high (15 years) of 9.7% as of December 2021. Moreover, retail investors have poured ₹1.9 lakh crore against ₹1 lakh crore of FII outflows since December 2020. The total number of investor accounts with depositories reached 90 million in FY22, up 2.2x from pre-pandemic levels, the report adds.

The ownership of retail investors has risen by 130 basis points from pre-pandemic levels. As per the BNP report, the share of individual investors in the cash market turnover was 45% in FY21 versus 39% in FY20. Currently it has moderated to 41%. After three years of outflows in 2017-19, retail investors turned net buyers of the market in 2020 that strengthened in 2021 as the market rebound bolstered sentiment, offsetting some of the foreign outflows, the report says.

Besides direct participation, SIPs remain the preferred investment option for retail investors, with average monthly SIP inflows at ₹10,400 crore in FY22 vs ₹8,000 crore in FY21, which in turn have helped domestic mutual funds (DMFs) raise their ownership in Indian equities. SIP flows crossed ₹12,000 crore in March 2022.

But after a recent fall in the market, new market participants are feeling a bit jittery.

Shahnaz Pathan, a Pune-based working professional is re-evaluating her SIP portfolio as her investments are on negative yield. Speaking with Fortune India she says, “I am losing money when I expected positive returns because the stock market was performing very well. Now I have learnt not to trust sales gimmicks and will soon close my SIPs”, she adds.

Indian stock markets are rife with retail investors who entered the market post 2020, a boom time. Newbies’ first encounter with the Bear never bodes well for the market. And with a large chunk of first time retail investors in the overall consumer base, depressed retail sentiments may prove ominous for the Indian stock market in the current times.

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