Retail investors contribute 10-year high of 45 pc to NSE turnover

India has been seeing a retail investor boom when it comes to the stock market ever since the first lockdown was imposed in the wake of the coronavirus pandemic. According to data from the National Stock Exchange (NSE), 90 lakh people have joined the legion of retail investors during the fiscal year 2021. Bombay Stock Exchange (BSE) data shows that it has added 1.78 crore new investors from May 2020 till early May this year.

Also, Indian investors have opened a whopping 14.2 million demat accounts in the financial year 2021. This is nearly thrice the number of accounts in the earlier fiscal year. In fiscal year 2020, 4.9 million demat accounts were opened, according to data from the depositories, NSDL and CDSL.

In the last one year, individuals investing in shares now make up for nearly half of the stock market turnover — retail investors accounted for 45 per cent of the turnover of NSE in FY 2020-21, according to the NSE. This percentage is cited to be the highest in a decade.

The retail investor addition seems to have beaten even foreign institutional investors (FIIs) and domestic institutional investors (DII). Data suggests that the participation of foreign portfolio investors has dropped from 23 per cent in FY2016 to 11 per cent in FY 2021. Corporate contribution to NSE turnover came down from 10 per cent to 5 per cent over a span of six years. Similarly, DII contribution has also dropped to 7 per cent from 9 per cent.

Factors that have contributed to retail investor boom

One more significant statistic to note is that the average daily turnover of internet-based trading went up 70 per cent year-on-year in the cash market to touch Rs 15,400 crore in the financial year 2021. This signifies that increasing online penetration and use of smart devices and the Internet during the pandemic has led to greater awareness and participation by retail investors.

Smooth interfaces by brokerages, easy to use apps and affordability of smart devices have also added to the boom in retail participation in the stock markets. The availability of learning resources online has added to the boom — investors can now easily look up information, video capsules and tutorials online about the stock markets.

Also, easier know-your-customer (KYC) norms introduced by the Securities and Exchange Board of India (SEBI) have led to better access to financial services online.

A key factor that has led to greater interest among retail investors is the rally of the stock markets ever since the crash of March 2020. The benchmark index, Sensex, gained 68 per cent in fiscal year 2021 while the BSE 500 has gone up 77 per cent. The Sensex had touched 25 k levels in March 2020 to rally to an all-time high of 52,500 plus levels in February 2021. The Nifty gained 78 per cent for FY 2021. This surge led many Indians, particularly the millennials to take to stocks. Lockdowns and restrictions, work-from-home policies and job losses also contributed. Many took to the stock markets to seek an alternative source of income during the lockdowns of 2020.

Moving away from traditional investment options

In March 2021, 1.9 million demat accounts were opened, the highest ever monthly rise. This indicates a shift in investment attitudes as more Indians seem to seek the stock markets as an alternative or an add-on to conservative options like real estate, gold or bank deposits.

The retail investor boom is evident in the total cash market turnover for March 2021 — Rs 13.9 lakh crore, an increase of over 71 per cent from a year before. There has been a decline of 14 per cent since February because of the second wave and concerns over inflation.

An offshoot of retail investor boom is the reduction in mutual fund investments. Average inflows on a monthly basis into mutual funds via systematic investment plans (SIP) dropped to Rs 7,900 crore in fiscal 2021 from Rs 8,340 crore in fiscal 2020.

On the derivatives front too, retail participation has seen an increase in the equity segment. Retail participation in derivatives premium turnover is at 30 per cent while FIIs have 21 per cent of the pie. Together, retail investors and proprietary traders make up for the largest share in the category of index options trading, where prop traders dominate at anywhere between 39 and 43 per cent. Retail participants contribute 29 to 32 per cent.

Conclusion

It is boom time for retail participants in the capital markets trading, as a record number of new participants have been added on the NSE and BSE over the past one year. The reasons include greater awareness, easier KYC norms, the stock market bull run from the low of March 2020, among others.