Indian retail investors turn cautious amid market volatility. Should value investing be the next bet?

Stock market today: Indian retail investors, the key force behind the unprecedented surge in the Indian stock market over the last five years, appear to be losing their enthusiasm as conditions in the world's fifth-largest stock market took a turn for the worse.

The confidence that once fueled investments in the Indian stock market as a gateway to India's growth story is now beginning to waver, with analysts suggesting that investors are turning into sellers after being persistent buyers for an extended period.

According to the domestic brokerage firm Kotak Institutional Equities, retail investors have started turning sellers on a direct basis in recent weeks, while still buying through the mutual fund route.

"Our analysis of flows shows that retail investors have possibly turned net sellers in the cash market on a direct basis in recent weeks after being perennial buyers (directly and through MFs) for a long period of time," the brokerage firm stated.

Kotak believes that this shift may be driven by muted trailing returns. However, the firm noted that it would wait to see whether households change their approach toward mutual funds in terms of both stock and flow. It also highlighted that sustained inflows into domestic equity mutual funds have, in turn, driven large domestic institutional investor (DII) flows into the market.

FPI flows turned positive

Meanwhile, foreign portfolio investor (FPI) flows have turned positive in the past few days, reversing the large negative outflows seen over the previous six months. This shift, as per Kotak, may indicate a change in sentiment, with some investors finding value in certain segments of the market following the recent severe correction.

Notably, recent data also includes approximately $1.5 billion in inflows due to the rebalancing of the FTSE Index on March 21.

"The sudden shift in market flows—between FPIs, DIIs, and retail investors—compared to the trend of the past six months suggests that expectations around market returns are evolving among different participants," said the brokerage.

Navigating market swings: Why focusing on value matters

While investors can analyse flows and prices in an attempt to predict the market's next move, Kotak suggests that a focus on price-value propositions may be a more reliable approach. The daily fluctuations in flows and prices can be exciting, but the fundamental value of a stock remains largely unchanged except for earnings shifts, rollovers, and other adjustments.

In a market filled with constant noise, focusing on intrinsic value may be the best way to maintain a clear perspective, it said.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.