Kotak Institutional Equities says retail investors, who have been the primary force behind the Indian markets, would not be deterred by the latest market blip as they have been motivated by greed while being immune to fear so far. However, a few small things could lead to a change in sentiments, the research firm said.

What Happened: In a note on Indian equities, Kotak Institutional Equities said it is hard to determine whether retail investors will be cautious after the recent correction in the market as they have ignored previous negative developments such as election results and higher capital gains tax. 

However, some small factors could snowball to retail investors stopping the fund flow, the brokerage said. This includes some retail investors thinking they got enough returns from narrative stocks such as BHEL, Cochin Shipyard, NHPC, NTPC, Power Grid and HPCL, which have little valuation support. 

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Other factors include some investors wanting to protect their returns from the last three to four years and some investors who will follow the herd in moving out of the market just as they followed them into the matrket. These factors could slowly change investor sentiment, the brokerage firm added.

The growing number of non-institutional investors and their price-insensitive investment approach to investing in equities through mutual funds or systematic investment plans (SIPs) has driven the Indian markets up, the research firm said. 

Kotak argues valuations of most of the non-financial Nifty 50 constituents are trading at expensive valuations relative to their history and narrative stocks being at frothy valuations despite their recent correction.

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