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Rise of the Retail Investors

Burgeoning age of Retail Investors

As the skies halted for the global movement of people, pilot Abhishek had to pause flying at high altitudes.  Sandeep’s auto ancillary facility didn’t need as many hands due to the drop in production. Anushka’s company announced work from home for an extended period. Mehul just graduated with a distinction and soon realised companies are on a hiring freeze. Tanasvi had just started working at a high-end store which got abruptly shuttered. 

As the pandemic and its series of follow-on waves started to sweep across the globe, the real-life saga of people’s fightback to deal with the new normal was truly inspirational. For those who unfortunately succumbed to the debilitating medical catastrophe, the loss is profoundly tragic and inconsolable. Yet for the vast majority of mankind, to escape COVID-19’s wrath and survive was indeed a reset moment.

With economic uncertainty looming large, financial and social responsibilities to fulfil and no end of the crisis in sight, millions across the world opted for a unique activity – equity investing.

Altered behaviour

What started as a way of finding an alternate source of income soon morphed into a nearly full-time occupation and means to protect and create wealth.

Indian retail investors have since evolved and come of age. From the earlier “get rich quick” mindset, relying on tips, poor quality advice and with hardly any reliable information available in the public domain – Investing into stock markets then was akin to an adventure night in a casino. Fast forward that to March 2020 when crores of retail investors opened demat accounts during the onset of the COVID-19 crisis when the Indian stock market had plunged nearly 40%.  

Since the outbreak of the pandemic, additional 1.90 crore new demat accounts have been opened between March 2020 and June 2021. The value of the securities held in the demat custody too has swelled by Rs. 25,46,498.045 crore since March 2020 as per depository participants’ data.

The surge in Post-pandemic Demat Account Holdings (India)

 Mar-20Jun-21Difference
No. of Client Accounts (Resident)4,00,72,6796131823621245557
No. of NRI Client Accounts3,48,39737976931372
Total Individual Accounts4,04,21,0766,16,98,00521276929
Demat Value (Equity) Rs cr20,18,09944,98,9232480824.01
NRI Demat Value (Equity) Rs cr1,07,3892,48,002140613
Total Value (Rs Cr)21,25,48847,46,9262621437
Source: CDSL and NSDL

The Chief of Indian market regulator SEBI ascribed low-interest rates and ample liquidity to be major contributors for enhanced investor interest in Indian securities markets, confirming that 24.5 lakh demat accounts were opened each month.

Larger women workforce

Additionally, remote work has led to companies tapping into a larger pool of employees in tier-2 and tier-3 cities, especially women.

Living in the far-flung Hazaribagh, Shalini didn’t have access to global giants. But she now works for a shipping major and is looking to save the bulk of her salary. Shalini is a part of the 20% strong-women workforce as ascertained by the World Bank. Her go to investment tool has become a systematic investment plan (SIP) under the mutual fund umbrella.

Investment Surge

Little wonder then that the new SIP registrations have shot up to 15.48 lakhs as of May 31, 2021, from 7.50 lakhs in April 2020 aggregating to the current SIP accounts of 3.88 crores. The amount contributed through these SIPs too has enhanced to Rs 8,819 crores by May 31, 2021, to Rs 8,376 crores April 2020.

Retail participation in stock markets has exceeded a whopping Rs. 87600 crores since the start of the pandemic. This additional interest in equities has expanded the financial assets held by Indian households to 21% of the GDP (Rs. 8,15,886.6 crore) in the first quarter of 2020-21, from an abysmally low 5.6% of the GDP (Rs. 2,57,163.5 crore) in 2018-19.

Despite the exponential growth, India is still at nascency when compared with the US market where household participation in Equity is around 52%. In markets such as South Korea, retail participation is as much as 70%.

Drivers of Growth

The two biggest drivers of growth in retail participation have been Technology and Big Data. The digitization super cycle which started a couple of years before the pandemic is now riding a powerful J curve, completely transforming the way investing is done. Technology has enabled investment platforms to be built and be seamlessly integrated through API technology, enabling investors to empower them with adequate knowledge online and fulfil their investment needs, with few clicks. Access to high-quality research and information, investment tools and data has democratized the world of investments. Technology has also brought down the cost of investments and enabled transmission and execution to happen with high levels of time and cost-efficiency. An explosion of Data and information is transforming the traditional investment management processes.

The proliferation of high-quality discount brokerages, investment and trading platforms, diverse product offerings, cheaper leverage, efficient risk management tools coupled with access to not just the domestic market, but global exchanges have enabled retail investors and domestic households to participate in the stock market like never before.

Protecting the retail

The growth in retail participation has expanded the equity market and made it more resilient.  The reliance on foreign institutional investors has reduced for the domestic equity exchanges. The overall equity investments in the financial savings pool of Indian households have surged to Rs. 32197.8 crore in the first three quarters of 2020-21, as against Rs 6,382.4 crore invested in the whole of 2018-19, according to RBI.

Soon, the retail segment would be able to balance the institutional investing outflows. For instance, foreign portfolio investors sold Rs 23,874.10 crore worth of Indian equities during the last month (June 20-July 20, 2021), but domestic institutional investors pumped in Rs 15,725.50 crore in Indian equities during the same period. So, the swings have been at odds based on the investments by either foreign or domestic institutions. A wider and faster-growing spectrum of retail investors could help balance these swings, reducing overall volatility and offer markets the needed depth.

Regulatory intervention

The regulators too need to build systems to protect the retail investors from manipulative trading activities. Along with the Indian stock exchanges, market regulator SEBI has introduced a six-stage system in 2017 preventing unwarranted price swings in stocks having a market capitalization below Rs. 25 crore ($3.4 million) considering not just volatility but also a company’s fundamentals.

Such robust systems are needed globally and regulators such as the USA’s Securities and Exchange Commission are considering distinguishing ways to avoid stock manipulation and cases of “meme” stocks that were “gamified” during the past year.  

In keeping with the vision of a 100% Digital India, the regulatory framework has been supportive to enable the transition from an offline yet high-cost model to an online and low-cost scalable investment ecosystem.

Conclusion

Amid all the gloom and doom arising out of the pandemic, the stock markets across the world have been an island of refuge. The deluge in retail investors participating in the stock markets has been an extremely positive outcome for all stakeholders. In fact, the biggest risk for a young country like India is not participating in the stock markets. Retail investors have started serving this cause extremely well and is just the beginning of a megatrend and mainstreaming of direct investments.

This article is authored by Arindam Ghosh, Co-Founder & CEO at Alphaniti

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