Express View on Sensex highs: Surge and risk

Ahe benchmark indices are scaling new heights — on Tuesday, the BSE Sensex surpassed the 85,000 mark during trading, but ended the day lower. On Wednesday, the index closed at 85,169. Since the beginning of this year, the Sensex is up almost 18 per cent. The initial public offerings market has also been robust. As per the Economic Survey, the number of IPOs has risen from 164 in 2022-23 to 272 in 2023-24. And the momentum continues with several big companies tapping the markets. Alongside this surge in markets, the investor base continues to increase sharply. According to the Economic Survey, the number of retail investors has risen to over 9.5 crore, and there are more than 4 crore mutual fund investors in the country. In August, there were 9.61 crore SIP accounts. Foreign investors have also turned positive in recent months. After outflows in April and May, foreign portfolio investors have pumped in money. In the financial year so far, net investments by FPIs add up to Rs 81,451 crore. The US Fed cutting interest rates, and providing greater clarity on the trajectory of interest rates, has also influenced investors. However, this euphoria has been accompanied by individual investors making riskier investments.

A study by the stock market regulator shows that the number of individual investors in the Futures and Options market has almost doubled — from 51.35 lakh in 2021-22 to 95.75 lakh in 2023-24. Nine out of 10 individual traders lost money in the F&O segment. Yet, a significant number of them continued to trade. The study estimates that during the last three financial years, 1.13 crore unique individual traders lost Rs 1.81 lakh crore in this segment. Of these, more than 1 crore traders lost Rs 2 lakh per person on average during this period. While these individual traders lost money, it was the foreign portfolio investors and the proprietary traders who made money — profits of the two categories added up to Rs 61,000 crore last year. The demographic profile of these individual investors is revealing. The proportion of young traders, those who are less than 30 years old, has increased sharply — from 31 per cent in 2022-23 to 43 per cent in 2023-24. More than three-fourths of individual traders have declared an annual income of less than Rs 5 lakh. This continuing surge in F&O trading, especially by individual investors, even as most of them have been incurring sizeable losses, has been a cause of concern for some time. In July, Sebi had released a consultation paper outlining a series of measures to impact trading in this segment.