Notwithstanding the concern over high valuation, retail participation in the cash segment of equity markets has hit record levels last year on back of buoyant primary issuances and FOMO (fear of missing out) syndrome among small investors.

The cumulative turnover of cash segment on NSE and BSE had more than doubled in December to ₹20.79- lakh crore against ₹10.21-lakh crore in January with the average daily turnover touching a high of ₹1.04-lakh crore (₹48,601 crore) in the same period.

The number of trades on the exchange platform, too, scaled a new high of 68 crore last month against 38 crore in January. The operative demat account, a pre-requisite for trading in equity, increased to 14 crore last year from 11 crore in January.

The bullish trend was supported by the number of IPOs at 57 against 40 in 2022 with most of the issues being oversubscribed last year. However, the fund raised was lower by 17 per cent at ₹49,434 crore ( ₹59,302 crore).

Interestingly, the BSE IPO Index has delivered better return of over 35 per cent last year against 14 per cent by Sensex reflecting the buoyancy in the primary markets.

Analysts caution

Not just retail investors, even foreign portfolio investors (FPIs) were bullish on Indian equities. After an outflow of ₹1.21-lakh crore in 2022, FPIs returned buying equities worth ₹1.65-lakh crore last year. In fact, it was the highest FPI inflow since 2020 when buying stood at ₹1.7-lakh crore.

Satish Menon, Executive Director, Geojit Financial Services, said adding further lumpsum fresh investment in equities during such a prolonged period of elevated valuation is not advisable for retail investors.

However, he said the present situation is perceived as less risky owing to the optimistic long-term outlook of the Indian economy and its expanding domestic market. Attractive investment opportunities still exist in large caps, stock- and sector-specific themes, besides defensive sectors such as IT, Pharma, Private Banks, and FMCG. Retail investors are encouraged to implement a multi-asset investment strategy, emphasising staggering offresh investment over a period of time, he added.

Santosh Meena, Head of Research, Swastika Investmart, said retail investors are flocking to the cash market, lured by the recent bull run and the seemingly easy profits it promises. This surge is evident in the record-high margin trading funding of the broking industry, said Meena.

While this excitement is understandable, it is crucial to maintain a cautious approach. The structural bull market boasts of strong domestic liquidity support from consistent SIP flows through mutual funds, particularly into mid- and small-cap funds, acting as a safety net against potential downturns.

This euphoria carries the risk of getting caught in overvalued or unsuitable stocks. Quality and valuation should always be paramount for retail investors, he added.