Results of retail brokerages for the last quarter of the previous financial year reveal an interesting trend in investment patterns – retail trades in the Options and Futures segment are gaining momentum, a space which was hitherto dominated by institutional players.
“The “cash” share purchases, i.e. stock bought for delivery (and not funded by margin funding) has shown a decline in the Jan-Mar 2022 quarter while Options and Futures traded by retail have gained momentum,”
Mutual Fund said.
“The “new-age” investors, it appears, are increasing the retail’s share in Options trading in the largecap space, a domain erstwhile dominated by institutional investors. As Options and Futures are usually margin funded, retail leverage should be increasing, as the data of the last few quarters shows,” the fund house said.
Consequently, retail leverage is higher at current market levels and is largely in the top 200 stocks rather than at the smaller-cap end of the market, as was generally the case in the past, IDFC MF said.
RETAIL PLAYERS MORE BULLISH ON STOCKS
According to IDFC MF, there exists a difference in retail investors’ positioning on index futures as against individual stock.
The retail positioning accounts for about 69 per cent of all index futures long positions while on the short side, the share is around 49 per cent.
But, when it comes to individual stock positioning, the retail share makes up 52 per cent of all long futures and less than 7 per cent of short futures.
The takeaway is retail investors are more bullish on stocks and less on the index movement going forward, the fund house said.
With volumes on the options trading side seeing a rise, retail leverage could be increasing and this always leads to higher volatility, especially when events that were not predicted or were viewed as having a small chance of materialising actually occur, IDFC MF said.
“How this plays out, could well decide the trend of the market, at least in the short term – less than 1 year.”
The fund house maintained that over the longer term, it would be earnings growth that would set the pattern for the market.
From that point of view, while the results so far declared show a mixed picture, they do not report anything alarming, IDFC MF said, adding that while the earnings estimates may be reduced for the current financial year, they remain largely intact for the next.
“Aggregate earnings may not appear to have changed much, as upgrades will be limited to a few sectors – Oil & Gas; Metals; Coal & Autos (maybe) — the quantum of these upgrades will be equal to or higher than the cuts across a swathe of sectors like consumer staples; discretionary; pharmaceuticals; engineering; EPC, in short users of commodities.”
IDFC MF believes that elevated commodity prices could lead to either or both of the following scenarios.
Firstly, a shrinking of demand and secondly producers increasing production. A combination of both these factors could potentially lead to a cooling-off price during the second half of the current financial year, the fund house said.
“Whether this hypothesis works or we have a full-blown inflation scare, will have a material impact on the market move, going forward.”
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