The rise and rise of the markets is making quite a lot of people jittery. Too much anything, even the good is bad.

The Govt, which does always have an eye on the markets also seems to be worried. On Monday, the Parliamentary Standing Committee on Finance asked SEBI about the growing role of retail investors in the equity markets and seemed to be worried about its impact on the market functioning. Anxious about speculative activity, the panel is apparently worried about the spike in volatility.

The Panel, headed by Jayant Sinha also talked with SEBI about ways to ensure that the market and the participants stay protected through all ups and downs, right from regulatory, surveillance methods and even policy measures.  The panel is of the opinion that SEBI is not doing enough.

Well, the Govt needs to make up its mind – it wants retail participation to go up or no? But the Govt needs to know that individual investors are a force to reckon with and they have tasted blood thus here to stay.

Take a look at the sheer number of retail investors – SBI report said that in the first two months of FY22, almost 45 lakh retail investor accounts were added. In FY21, CDSL added 122.5 lakh new accounts and 20 lakh at NSDL. The share of individual investors in total turnover on stock exchange has risen to 45% from 39% in Mar’20.

With FDs offering pitiable rates of return, no other investment avenues and with people spending more time at home – the huge millennial work force is investing big time in the markets.

But the big question is whether this huge flow of money from individual investors will sustain? Once the rate cycle turns, starts moving up, will this love for the markets remain intact? There is no denying that currently our markets are super-expensive and valuations are way ahead of fundamentals. The risk is that if returns from the stocks stay low, it could lead to fatigue among retail investors. Bank rates have completely bottomed out – rates are not going to go up in a hurry in FY22 as RBI’s focus will remain growth but in FY23, FDs will start getting its mojo back.

Retail investors are here to stay – there is no doubt about that. Mutual funds will remain the preferred route going ahead. It is impossible to call the bottom or top of this market but under the current circumstances, with worries of the third wave round-the-corner, its best to get incrementally selective with small and mid-cap stocks. Stay put only in quality companies as most valuations appear rich.