Govt cautions retail investors against 'herd mentality'

NEW DELHI: In the midst of the stock market turbulence, the government has sounded a word of caution to investors, with the pre-budget Economic Survey asking them to resist the 'herd mentality'.

"They would do well to resist from commonly observed 'herd mentality' and 'panic' in their buying and selling operations", said the Survey tabled in Parliament by Finance Minister P Chidambaram on Thursday.

The advice comes to investors in the middle of the Parliamentary Standing Committee on Finance looking into the developments in the market, particularly the January 22 debacle when the benchmark Sensex plummeted.

"Individual investors need to take informed decisions and remain cautious," it said, pointing out that Indian stocks as reflected in P/E multiples was the highest among the emerging market economies such as South Korea, Thailand, Malaysia and Taiwan.

It further emphasised that investor awareness is equally important from the market stability angle as 'investment in equities could be based on incomplete analysis and guided by short-term speculative gains'.

Pointing out that the importance of ensuring healthy and orderly conditions in the market has become more urgent, the Survey said the policy initiatives should 'transmit right signals unambiguously, the regulators need to remain proactive and vigilant to obviate the occurrence of any irregularities in the conduct of business in the market.'

It further said that insurance and pension funds would provide impetus and broaden the horizon of the government securities market.