Retail investors have been bullish on domestic equities even as the equity benchmark Sensex has fallen about 14 percent from its all-time high.
As per a report by Mint based on data compiled by Bloomberg, the ratio of outstanding long-to-short positions in single stock futures is at 6.74 times versus a 10-year mean of 3.74.
That is down from about 10.4 in January. However, the fact that it remains elevated could point to the risk that retail investors are too optimistic and vulnerable to disappointment from an array of threats, the Mint report added.
The Indian market has been witnessing strong influx of retail investors in the wake of coronavirus pandemic. As per BSE data, the number of retail investors have surged more than 55 percent since the last year.
At a time when foreign institutional investors (FIIs) have been selling Indian equities since October 2021, domestic institutional investors have been on a buying spree since March 2021 in the Indian market which is also saving the market from suffering a major crash.
Historically, it has always been the case that the selling of one is more or less being absorbed by the other. However, it remains a fact that FPIs do impact the mood of the market. Now, the domestic investors are turning into a formidable force and it is unlikely that selling by FPIs will crash the market.
The Indian market has evolved tremendously in the last few years and a complete crash of the market can be devastating. It makes sense that domestic investors provide support to the domestic market and save it from a steep crash-like situation.