Retail Investors Turn Net Sellers in March Amid Volatility, Tax Planning, and Profit Booking:

Even though the markets were doing well, in March, the retail investors for the first time in six months became net sellers of equities while primarily making profits. This brought about the sell off, which was the most significant in 15 months, and was witnessed with outflows of value hitting Rs 9200 crore. This was the first net selling since September 2020, and the steepest since December 2023. In contrast, Domestic Institutional investors invested with aggression to turn net sellers of value by \$8,224 crores, while injecting Rs 28118 crore into equities and foreign institutional investors.

Many experts attribute the reasons of the exodus of the retail traders to many explanations, having the financial year end being the most important one in March.

FII selling leads to more caution to retail investors.

As Sheth, head of market perspectives and research at SAMCO Securities suggested, there are many reasons for the retail traders’ strike. Apart from selling stocks to save tax for the tax harvesting period, salaried employees are also trying to save and pay for so-called tax-saving schemes under section eighty of the income tax law, and meet their other financial goals, no matter if they make a profit or a loss.

FPIs selling off and experts predicting more SMID corrections appear to have catalyzed retail investors to leave in order to mitigate losses as Sheth observed.

Booking profits on multi-bagger returns

Analysts indicated a shift in investor behavior during the recent market recovery combined with political uncertainty. Following the markets’ recent lows, several investors are now choosing to book profits in a range of 10-15 percent instead of seeking further multi-bagger returns.

Since March, India’s leading indices, the Sensex and Nifty 50, have increased by 6.5 percent and 7 percent, respectively, while BSE Mid and Small Cap indices significantly outperformed the larger market rising by 9.8 percent and 11.1 percent.

Sheth noticed a shift in retail investor’s capital allocation strategy from growth seeking towards a growing focus on capital protection in times of heightened volatility, which is starting to become the norm.

As uncertainty looms amidst high interest rates, investors are turning towards gold as a hedge along with shifting towards value stocks and fixed-income securities. Mundra highlighted that although FIIs have resumed their timid buying, the market’s recovery continues to remain fragile which is further impacted by retail investor’s inclination towards safety.

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