Hello friends, It is seen that for last 2 and a half years, Indian stock market has seen a major incoming of individual investors. And reports say that mutual funds has surged upto 30% and are their all time highs. Now Let us understand how a individuals spending drives the market and stock market.
These days people are investing in mutual funds in view of good returns but the most important things to see is that, from where are they getting this money to invest in funds or invest. Obviously it is their savings.
Or in other words they are spending less now so that they can invest in stock markets. So for last few years, they were investing their savings into the stock markets thereby spending less in physical markets. And this bullish trend of retail investors led Nifty to hit 9020 from 6500, seeing almost 40% rise. Now this burst in not because companies performed well, its not because their expansions were beneficial but it was the emotions of investors which let them to go new new highs. But now see the impact of this all ongoing.
Further because of demonetization also, physical buying has reduced at major levels but investments in mutual funds is increasing because everything has now become digitalized. So buying a mutual fund or a stock has become much much easier.In all the buying in physical markets is reduced by about 40% at least, so the companies sales and the profits has to go down for sure and mind it now the stocks are slowly shifting in the hands of retail investors. Retail Investors are induced easily by emotions and fear and any negative news (be it sales reduction, debt un-control or any global change like shifting power from democrats to republicans in world’s powerful country,USA) can easily trigger a major, really major correction and we can call it a burst.
But said that, it would be wise to say that above are only my personal views. These vary from person to person. And these should not be understood as exact criteria for judging the market trend ahead. But one should stay alert and if we could get the exact scenario as discussed above somehow, be ready to take benefit of it. As people has made huge money investing in such times.