Buy when there’s blood on the streets, the 18th-century financier Baron Rothschild said after making a killing on bonds in the Battle of Waterloo. But if you’re looking for a crimson tide on Dalal Street after the recent stock market rout, you will likely be disappointed.

For a few weeks now, global events have been churning the Indian stock markets, just as they did after the Lehman Brothers’ crisis of 2007-08. On August 24, a sudden collapse in Chinese stocks saw the Sensex tumble by over 1,600 points in one of its biggest single-day falls ever. Foreign investors have since been anxious to exit, citing the wobbly Chinese economy and emerging market currencies, as also, a hawkish US Fed.

In a series of Black Fridays and Manic Mondays, the Sensex has fallen by 15 per cent, while some commodity and mid-cap stocks have lost 40-50 per cent.

Strangely however, the panic and mayhem that usually follow such a market meltdown is missing now. Financial advisers report that retail investors continue to pour new money into equity mutual funds. Long-term investors are busy hunting for bargain buys in the wreckage. And professional traders seem quite pleased with the tidy sum they’ve made by shorting this market.

No fear

“If you’re looking for blood on the street, it simply isn’t there,” says Nithin Kamath, CEO of Zerodha, a discount broking platform used by professional traders. “This whole market fall is being played out between institutions — foreign investors and domestic institutions. (Long-term) retail investors are hardly in the picture,” he adds.

“Compared to 2008, 90 per cent of my clients [today] are composed. In fact, I was more disturbed than some of my clients,” quips G Chokkalingam, founder of Equinomics Research and Advisory, which manages portfolios for wealthy investors. “At least 50-60 per cent of my clients wanted to bring in more money.”

The scene is no different at Motilal Oswal Securities, one of India’s largest retail brokers. “I’m not seeing any panic from clients who are building long-term portfolios. Rather, they have added to their positions,” says Vijay Kumar Goel, CEO - Broking and Distribution. He believes that this market fall hasn’t affected long-term investors all that much as they were barely invested in equities.

Kamath too believes that retail investors aren’t rattled because they were not participating actively in the rally that preceded the market fall. “A bull market is not made simply by Sensex levels, you know. It’s investor behaviour too. In this rally, there was simply no excitement, no leveraged positions, no margin funding, none of the things you expect to see in a bull market.”

That kind of excitement was certainly around between 2003 and 2008. When that bull market was on, IPOs were at the centre of grey market action. Realty, power and infra firms of all sizes were rolling out big-ticket offers. These, in turn, delivered listing gains of 70-100 per cent like clockwork, spawning a brisk business in rented demat accounts. To secure assured allotments in fancied IPOs, large operators would pay ₹3,000-4,000 to retail investors holding demat accounts to apply on their behalf. Once the stock listed with fabulous gains, the benami demat-holders would transfer the shares to the operator, who would then sell them.

For the last five years, though, the primary market has been dead in the water. Even rock-solid offers from public sector firms have received poor response, forcing the trusty LIC to bail them out.

More mature

There are those who read the lack of panic (or euphoria) among retail investors as a sign of maturity. Could it be that all those investor awareness camps and seminars extolling long-term investing did, after all, make an impact on the retail mindset?

“I get the feeling that many investors are no longer out to make a fast buck on equities. In 2007, a number of people wanted short-term stock ideas. Now I see more people wanting to build a long-term portfolio. So maybe maturity levels have improved,” says Sandip Sabharwal, a fund manager-turned-professional stock adviser. “Or maybe the kind of clients who come to me now are different,” he adds.

PV Subramanyam, a leading financial adviser from Mumbai, who counts many small investors among his clients, is convinced that there has been a behavioural change in mutual fund investors, thanks to the widening SIP (Systematic Investment Plan) market. “When you get SIPs from Kerala, Punjab, Gujarat and West Bengal all in the same equity fund, not all those investors will behave in the same way. The farmer’s SIP is different from the schoolteacher’s,” he says.

He has observed that investors at the lower end of the pyramid behave differently from the (so-called) savvy investors. “They benchmark their returns to what they are getting elsewhere, maybe a bank recurring deposit. Investing is a simple process for them. I have small clients telling me, ‘Maine saat hazaar dala, woh assi hazaar ho gaya (my investment of ₹60,000 has grown to ₹80,000).”

That is sound reasoning. Global cues might shake up investors in urban centres who are plugged into the hourly news flow from TV, Twitter and business blogs. But lay investors oblivious to all this noise would scarcely spend sleepless nights fretting over Greece, China or Janet Yellen.

Trading opportunity

If long-term investors aren’t exactly shaking in their boots, some short-term traders are happy with the market volatility. Traders usually thrive on two-way movements, and for them the rally from 2013 has proved rather uneventful. The recent index gyrations have provided good trading opportunities.

Pawan Arora trades on Nifty futures based on technical indicators and, thanks to early warnings from the charts, he was short on the markets ahead of the fall. “I made 25 per cent of my annual profit target on that single day. I know I will lose money in some of the upcoming sessions, but that was a big day for me.”

He finds it amusing that in 2008 he lost quite a bit of money as a long-term investor, but is now raking it in as a short-term trader. He is among the many investors who kept accumulating blue-chips such as Reliance Industries and SBI in the tumbling markets of 2008, confident that nothing could happen to such big names. But when they lost a chunk of their value, they had no choice but to convert them into ‘long-term’ holdings.

Why it’s different

But should everyone be so sanguine? What if this fall turns out to be just the beginning of a mammoth crash, like 2008?

After all, aren’t many investors still licking their wounds from January 2008?

That year, the Sensex hit a record high of 21,206 on January 10 before descending into a tailspin, all the way to 16,700 on January 22. Quite a few investors viewed this as a lifetime buying opportunity, and rushed in to bet their shirts on realty and infra stocks. Only to discover too late that the rout was far from over. When the bear market bottomed out in October 2008, the Sensex was at 7,800. Fancied names that lost 70-80 per cent of their value back then haven’t recovered till date.

A repeat of that brutal episode is unlikely today, many portfolio managers assure us, pointing to fundamental differences in the market conditions between then and now.

Chokkalingam backs his optimism with four reasons. “In 2008, the problem originated with US financials. In India, financials made up 25-26 per cent of the indices then. Therefore we were severely hit. This time, the problem is with China in the metals space. Metals don’t have a big weight in our indices. Two, while America got into trouble after taking on too much debt for consumption, China has used its debt to create hard assets,” he reasons. He predicts that the $10-trillion Chinese economy will re-emerge a global heavyweight after the froth recedes.

Three, the Indian economy was racing ahead at eight-10 per cent GDP growth in 2008, which slowed to five-six per cent after the global crisis. But this time around, the GDP growth is picking up from five-six per cent and can only accelerate. He argues that the crash in oil and commodity prices will repair India’s fiscal deficit and prop up corporate profits, which can only help stock prices. Sabharwal points to the complete absence of froth in the markets today. “Bull markets never top out when the growth is so low, inflation is under check and central bankers are preparing to cut rates,” he says. Instead, they top out when asset prices are in bubble territory, like in China. He compares the recent correction to the sharp decline in mid-2006 when the bull-run was briefly interrupted before it resumed in full force.

Investors aside, what about the pessimism displayed by corporate chieftans who are disenchanted by the lack of reforms under the Modi sarkar? Sabharwal prefers to see this as a mere show for public consumption. “Corporates like to lobby for benefits, you know. So they take a negative stance.”

He refuses to fault the pace of reforms. In fact, he had started out being negative about the government last June, wary of all the expectation that was being built up around reforms. Now, he sees change on the ground, although people have turned sceptical.

Chokkalingam says fear-mongering is par for the course in falling markets. He mentions a large client who was in a tizzy last week after a large institution advised him to sell all equities. “I told him that I have gone through bear phases five times in my life. Every time you have a big market fall, you will see these bears coming out of hiding and saying all sorts of negative things that shake your confidence.”

He points out that when the Sensex was languishing at 8,000 in 2008, there were stalwarts who were painting a ‘there-is-no-tomorrow’ scenario. Yes, he thinks a three-five per cent fall is likely, but expects a solid recovery from October.

Overall, the market gyrations don’t seem to have disturbed the Zen-like calm of long-term investors so far. But if the volatility continues, will they remain unaffected? That’s not a given. As Sabharwal says: “In the first fall, everyone is a buyer. But if it continues, you have to reassure them to stay put!”

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