Deepak is anxious, looking forward to each new dawn with the hope of better days, but every day seems to mirror the last in disappointment. He shares, 'Had I known my year's earnings would vanish in a month, stocks would never have been on my radar.'
In India, Deepak is just one among millions who ventured into the stock market over the past couple of years, now grappling with the reality of a persistently downturned market. The pressing question in their minds: Why leap into stock investments? With a rapid rise in demat accounts over recent years, a flood of newcomers tested the waters of equity. Yet, the continuous decline over the past month and a half has jolted these investors.
The market saw a sharp fall even during the COVID era. But with fewer retail investors involved back then, it wasn't until post-COVID that people caught the stock market bug. Indeed, after COVID, a significant upswing was evident, enriching investors broadly. When the tide lifts all boats, retail investors also find substantial gains; this trend of profit persisted till August 2024.
Let it be known, the past 3 to 4 years have been particularly profitable in the stock market. Nifty showed about a 200% gain from its March 2020 lows, effectively tripling over four years. In March 2020, Nifty had plummeted to around 7600 points. From there, it embarked on an impressive journey to reach 24,277 points in nearly four years.
Convention suggests that stocks can outpace indices by doubling their growth. Thus, with Nifty tripling in four years, many stocks indeed outshone this benchmark, especially in the small-cap and mid-cap categories, witnessing growth of more than 500%.
Stocks like Trent and Adani Enterprises exemplify this, having delivered over 500% returns over the last four years, now part of the Nifty-50. In small-cap and mid-cap sectors, numerous stocks have boastfully returned over 1000%.
So, why are investors like Deepak suffering in this descent? Most retail investors who started investing over the past one to one and a half years are watching their portfolios transition from green to red. Meaning, the gradual earnings they've built have fizzled out, with some portfolios down by 10-15%. Initially, there was hope the tide would quickly turn—a pattern evident over the past four years where drops were promptly followed by brisk recoveries. This time, however, the script differs.
When Deepak was queried about his losses, he detailed his woes. 'I was investing gradually, had amassed over 200,000 in my portfolio. There was a time it showed a 40,000 profit, but now even the principal is submerged. My initial 200,000 is down to just 180,000, chalking up a loss of 20,000. It’s stuck there, can't even withdraw.'
Source: aajtak
Around you, surely, there are people like Deepak lamenting everyday losses. It's due to various reasons that new portfolios flipped from green to red.
1.
The stock market has tumbled nearly 10% from its peak, heavily impacting small-cap and mid-cap shares, which have fallen over 20%. If a portfolio was displaying a 20% profit a month and a half ago, it makes sense it's now red, regardless of being valued at one lakh or ten crore rupees.
2.
Over this period, shares in the small-cap and mid-cap arena have dipped more significantly than those in the large-cap category. It often leads to more pronounced losses for retail investors as they are lured by the prospect of greater gains from small-cap and mid-cap shares.
3.
Retail investors tend to chase headline-grabbing stocks, which tend to tumble the most in downturns. Recently, the hype around railway and PSU stocks attracted retail investors; these stocks previously generated substantial returns over the last one and a half years. Particularly, railway and defense stocks surged beyond expectations, and now these very stocks are the hardest hit, some losing up to 50% from their highs, ensuring unavoidable losses for retail investors. Examples include RVNL, RailTel, BEML, BEL, BDL, NHPC, IRFC, NBCC, Hudco, forming part of many portfolios.
4.
The downfall partly owes to certain mid-cap and small-cap stocks reaching high valuations, yet not reflecting corresponding earnings. Besides, foreign investors aren't allowing Indian markets to stabilize at high levels, persistently selling off their holdings. Over the past month and a half, FIIs have extracted nearly 1.30 lakh crore from Indian markets. Distressingly, within these 45 days alone, market capitalization of BSE-listed companies shrunk by some 45 lakh crore.
So, what should investors like Deepak do amidst this downturn? Market veterans consistently advise a long-term perspective, suggesting not to fret during lower points in the market cycle. Eventually, the market will rebound, and a downturn can present an opportunity for retail investors to acquire quality shares for their portfolios. If panic leads one to sell, maybe markets aren't the place for such individuals. (Deepak is a fictitious character)
