Retail investors’ frenzy over small stocks in India has reached such extremes that shares of some companies that aren’t booking any sales, let alone profits, are going through the roof.
These include Transglobe Foods Ltd., a fruit-jam maker that has skyrocketed more than 4,300% this year, and real-estate services firm Shree Precoated Steels Ltd., which has jumped over 1,300%. Both companies booked losses on no sales in the latest fiscal year.
The prospect of risky investments turning sour raises concerns that any sudden withdrawals by small traders could wind up hurting the broader market as well. That’s due to the rapid expansion in the presence of individual investors in India’s stock market, mirroring record sign-ups seen at U.S. brokerages including Robinhood during virus-related lockdowns.
“The out performance of retail-driven small stocks raises the risk of a pullback and some contagion” to broader markets, said Sumeet Rohra, a fund manager at Smart sun Capital Pte. in Singapore. Investors should stick with “quality stocks which have not participated, rather than chasing small caps,” he said.
While stocks of all sizes have roared back from the depths of the pandemic selloff, the recovery in smaller Indian shares has been stronger.
It’s also true that some broadening of the rally is welcome given concerns not long ago that gains were being dominated by just a few big names. Technicals are supportive, with the Sensex keeping below overbought levels, but some still see a need for caution.
True Beacon, a top-performing Indian hedge fund, told Bloomberg last week that it has trimmed bullish bets as the market has run ahead of fundamentals. It encouraged retail investors to stick with blue-chip companies.
More from Finance
The Indian rupee rose to its highest stage in practically six months on Friday, gaining for a 3rd straight session …
The government has extended by two months the deadline for placing bids for Air India till October 30 as the …
Indian multinational conglomerate holding company Tata group is pushing into the country’s booming tech sector with a new “super app” that …