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When the world was grappling with the economic and social repercussions of the Covid-19 pandemic, equity markets worldwide cheered the policy response in the form of unprecedented monetary and fiscal stimuli. Retail investors also joined the party, both in the developed world and in emerging markets, especially in India. Participation in the market is both direct and indirect. In India rising indirect retail participation is visible from a steady increase in ownership of domestic mutual funds into Indian equities during this period, benefiting from robust SIP (Systematic Investment Plan) inflows. Average monthly SIP inflows shot up by ~30% YoY to Rs 104bn in 2021-22, rising by a further 17% to Rs 121bn in the first quarter of the current financial year.
The last couple of years have seen an even higher jump in direct participation in search of better returns given the lacklustre performance of other asset classes. A sharp market crash in March 2020 after the onset of the pandemic lured retail investors into trading in equity markets, with a strong market rebound thereafter further strengthening their sentiments. There has been an unprecedented influx of new investors into Indian equities during this period, reflected in the jump in investor account additions with depositories, and client registrations with exchanges.
NSE data shows that retail investors turned net buyers of Indian equities in 2020 after an 11-year long hiatus, and significantly so over the subsequent 18 months.
This is nearly 88% of net investments made by domestic institutional investors during this period across exchanges and has translated into a steady increase in retail ownership in Indian equities.
A sharp surge in retail flows is also reflected in a commensurate increase in their share in total capital market turnover at NSE. The share rose from 33% in FY16 to 45% in FY21, only to fall marginally to around 41% in FY22, and then to 37% this fiscal, partly attributed to the market correction that has kept investors on the sidelines.
In line with the influx of new investors into Indian equity markets in recent years, the number of retail investors trading in the NSE’s cash as well as equity derivatives segments had nearly tripled since Jan 2020, to peak off at well over 10 million in January 2022. Despite the drop in participation from the investor pool this year, it remains well above pre-pandemic levels.
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