Stock Market Investment: Why retail investors are lapping up blue chips even though markets remain volatile

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June 26, 2020 2:16 PM

Investors are cheering a gradual resumption in business activities and an earlier-than-expected normalization in certain consumption sectors.

Stock Market Investment, stock market, S&P 500, Nifty, Sensex, retail investors, blue chips, blue chip stocks, mid caps, volatile market, gold, bank FDEquities, despite the volatility and run up, remain the most attractive investment option.

Equity markets globally have undergone sharp corrections after the onset of the Covid-19 pandemic in February 2020, as it has become one of the biggest threats to the worldwide economy and financial markets. The S&P 500 fell ~30% from its peak, while the Indian market fell ~40%, becoming one of the top laggards globally. However, the markets across the world have recovered since then as the governments and Central Banks globally have announced several stimulus packages to support their economy.

Global markets are now down in the range of 5-20% while the Nifty is down ~18%. Further, more stimulus measures are likely to be announced in the coming days as various governments have adopted a phased rollout approach, which could potentially help in avoiding a hard economic landing.

“Investors, therefore, are cheering a gradual resumption in business activities and an earlier-than-expected normalization in certain consumption sectors. Good monsoon prediction and hopes of a potential COVID-19 vaccine are also keeping the sentiments positive. However, concerns over the rising number of virus infections and geopolitical tensions continue to linger, which is keeping the markets volatile,” says Hemang Jani, Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services.

Whatever be the case, retail investors are ignoring these market volatility and continuously investing in the market on the belief that the economy will gradually recover from this pandemic over time as it has been witnessed in the past too.

“Management commentaries from various companies across sectors are also pointing out towards a pent-up demand which at least takes care of the near term. Thus, investors are taking advantage of such sharp volatility as it makes good stocks attractive. However, given the uncertain times, markets are likely to remain volatile. Hence, despite high valuations, investors are largely sticking with quality large caps while select midcap buying is also visible in the hope that over the longer time-frame of 3-5 years, the market will definitely reward them,” informs Jani.

Why blue chips are in demand

Market experts say that retail investors are currently buying blue chip shares because the markets have run up smartly and have generated handsome returns to investors who have bought in at lower rates. There is ample liquidity worldwide on the back of fiscal stimuli rolled out by various central bankers. This liquidity is resulting in huge support to equity prices everywhere, including India.

“Besides liquidity, there are two more reasons why equities are attracting so much of buying interest. Firstly, no other asset class is offering any significant return possibilities. Property market remains sluggish, gold prices are at an all-time high and bank FD rates are at multi-year lows. Hence, equities, despite the volatility and run up, remain the most attractive investment option. Secondly, bull markets are known to climb walls of worries. So, despite the gloomy environment, the future outlook looks promising relative to the present,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

Markets, in fact, always look ahead and are ignoring the present negativity and focusing on likely robust incremental growth next year. “Within equities, blue chips remain favourite of retail investors as they are safer, more liquid and easy to understand and track,” says Kapur.

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