Small investors make dip buying on recovery hopes

The resurgence in Indian equities despite the economic impact from the still-spreading coronavirus has bewildered professional investors.

Mom-and-pop investors, though, are all in. They’re piling into beaten-down stocks such as financials, telecom and high-quality drugmakers amid expectations that Asia’s third-largest economy may recover faster than expected as it gradually unlocks from the worlds biggest lockdown.

Mirroring the rush of first-time investors who drove record sign-ups at US brokerages including Robinhood, India has seen about 1.8 million new accounts opened since March. The benchmark S&P BSE Sensex is down 14 per cent for the year even after rebounding from the worst sell-off since 2008.

The Sensex has rebounded 36 per cent from its March 23 bottom, as local policymakers and governments globally added stimulus to counter the devastation caused by the coronavirus. But there is a wide dispersion in performance — the banking sector is down 31 per cent year-to-date, while healthcare stocks have rallied.

“Blue-chip valuations look reasonable and we foresee many new investors coming into the market to take advantage of this correction,” said Nikhil Kamath, co-founder and chief investment officer of Zerodha Broking, India’s largest online discount broker.

Retail investors are pivoting toward cyclicals as these suffered the most during the lockdown. That underscores the narrative that this is about expectations that the worst is over. Valuations for auto, energy and metal stocks remain low versus the broader market.

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