Each few years, there’s a section within the stock market when the so-called dumb cash (retail traders) outshine the highly-regarded sensible cash (seasoned merchants and fund managers). Proper now could be one such time.The Sensex and Nifty have rallied practically 50 % from the lows touched in the course of the March crash, with mid and small cap shares gaining about as a lot as measured by their respective indices.The restoration in stock costs is in stark distinction to the all-round harm to the economic system, livelihoods and company earnings brought on by the COVID-19 pandemic. The GDP is anticipated to shrink wherever between 1-5 % this fiscal relying on who you ask.The disconnect between the market and the economic system is effectively captured by a quote by Howard Marks, who, in April, commented that “the world is greater than 15 % screwed up” when stock costs had solely fallen that a lot in comparison with the harm that was rising.The market fell much more since however has since recovered, and is once more solely 15 % away from its all-time highs.However the disconnect appears to matter little to the brand new breed of particular person traders who in response to market pundits, have been largely chargeable for driving up stock costs since March.The speculation may have some fact to it. Between March and now, round three million buying and selling accounts have been opened on the prime 5 on-line brokerages led by Zerodha. That is additionally mirrored within the over 2 million new demat accounts with the Central Depository Providers (CDSL) and Nationwide Securities Depository (NSDL) throughout this era.Some market watchers mentioned the V-shaped rebound in stock costs in 2009 amid the worldwide monetary disaster would have served as an inspiration to many new traders. indicator of retail curiosity available in the market is the turnover within the cash market.Day by day common traded turnover within the NSE cash section has shot up since March. For the final fourth months, it has been round Rs 55,000 crore, in comparison with round Rs 36,000 crore for FY20. In distinction, traded turnover within the by-product section has not risen by a lot.Brokers say that many businessmen who’re in any other case informal traders into equities, have been buying and selling fairly closely over the previous few months. Previously, this is able to be seen as a traditional signal that the market may be nearing its prime. However this time it’s not a case of individuals neglecting their important career and coming to the stock market in the hunt for simple cash.“The lockdown would have had a role to play in shaping this trend,” Shyam Shekhar, Founder and Chief Ideator, ithought informed CNBCTV18.com.“Because people had nothing much to do, they started speculating in the market. It is a natural human tendency. To the outsider, it always looks like there is easy money to be made in the stock market,” he said.To be sure, this is not just an Indian phenomenon. In the US, a breed of new entrants called ‘Robinhood traders’ — named after the discount brokerage that his made this form of investing popular — are said to have played a key role in driving up stock prices there.There could be other factors at play too. Money flows into the stock market through systematic investment plans (SIPs) of mutual funds have been thinning. June in particular saw a precipitous drop in SIP flows.The reason could partly be due to job losses and pay cuts, leaving many households with less money for investments. Another reason could be that returns from many schemes had been floundering even before the market went into a tailspin in March.“It is very likely that at least some of the investors may have decided to try their luck by investing directly, since their fund were not performing,” mentioned Sandeep Jain, an ex-portfolio supervisor and impartial market analyst.“People hear about how others are doing well by investing on their own, and they too are tempted to do the same. And nowadays you are hearing about a lot of people having got lucky with their bets. Yes, dumb money is winning at the moment,” he mentioned.However for the way lengthy is the query.The final time retail inflows dictated the pattern was within the aftermath of demonetization. Inflows into the stock market surged, as many individuals parked a piece of their unaccounted cash within the stock market, partly by way of mutual funds and partly by way of direct investments.As cash gushed in, fund managers had no alternative however to deploy it. For the subsequent 20 months or so, there was simple cash to be made each by investing immediately in addition to by way of mutual funds. However after that, returns shrunk because the market rally turned slender and just a few stocks fared effectively.Lower to the current. The so-called dumb cash can push costs for some extra time, however those that have made outsized good points ought to preserve one eye on exit.For all of the speak about world liquidity, overseas traders have been not been as aggressive in shopping for Indian equities in a rising market, as they’ve been whereas promoting in a falling market. International funds web offered over Rs 62,000 crore in March and have purchased a little bit over Rs 36,000 within the following 4 months.Home mutual funds too seem like operating out of steam. The passion seen in March after they web purchased Rs 28,000 crore is lacking. If inflows into SIPs stay anemic, fund managers is not going to have a lot cash to take a position available in the market.And with out help from institutional traders, stocks can’t rise past a degree.Many stocks may have doubled and trebled from their lows, however with just a few exceptions, are usually not buying and selling a lot above what they had been pre-COVID.Many traders and market operators are caught in fairly just a few mid and small cap stocks, which had been underperforming even when the market was on its method to a brand new excessive final yr.Most of those stocks are essentially weak, and likewise occur to be these wherein the promoters are identified to govern the costs in collusion with operators.Ought to these stocks rally additional, many trapped gamers may resolve to exit, even when it means having to take a small loss.Sensible cash can play the ready recreation. Already it seems reluctant to chase costs even in high quality stocks which it feels may very well be overvalued.A majority of the retail traders are betting on the ‘greater fool theory’, or worse, the ‘fear of missing out’, than on an earnings restoration or fundamentals. So long as costs preserve rising, newer traders will preserve coming in, hoping to make a fast buck, and within the course of, offering an exit to the sooner entrants.If there may be some information on a COVID-vaccine breakthrough, the market might rally some extra. Aside from that, there may be little to recommend large good points from these ranges.In case you are a type of fortunate traders to have gotten in close to the underside, it may not be a foul thought to take some cash off the desk.