Pandemic Push For Retail Investors

Such is the relatively new found attraction of investing their surplus funds in shares either directly or through mutual funds that a SBI report has found the number of individual investors rose by a startling 14.2 million during 2020-21 when India like the rest of the world was busy containing the Covid-19 pandemic. Hasn’t this got something to do with people spending all their time at home allowing them to discover the potential to raise their wealth by investing in shares?

Retail participation in the stock market has further gathered pace in the current year as an estimated 4.47 million investors opening their accounts in the first two months of 2021-22 with the depositories CDSL and NSDL, registered with the Securities and Exchange Board of India, which maintain ownership records of financial securities.

Guessing the reasons for so many new investors across the country jumping on the stock market bandwagon, the SBI report says declining savings options in a low interest rate regime is prompting more and more people to brave out the risk associated with investment in shares. Interestingly, the report further confirms people spending so much more time at home after doing their lockdown forced routine work from home allowed them to indulge in stock investment and trading.

Mind you, an overwhelmingly large percentage of new investors are young in age. They launch themselves in the new pursuit with modest capital. But their investment decisions being based on reading and analysis of information culled from multiple sources, they are found to be less speculative than earlier generation investors. Technology is proving to be a major aid for millennials and Gen-Z investors.

The strong growth in household financial savings in three of the four quarters of 2020-21, except for the second quarter marked by a sharp moderation and both the Sensex and Nifty scaling unexpected highs, helped in no small way by a huge inflow of funds from foreign institutional investors lured many Indians into the rising market. (Foreign portfolio investors have brought well over $9 billion in the Indian market so far this year, while some Asian markets have seen outflows.)  In a rally over 18 months that is by far the best in the world, the Sensex at one stage crossed 60,000 mark and Nifty was just shy of 18,000. Bloomberg data shows Indian equity market has outperformed the MSCI world index by 22 per cent in the past one year and the emerging market MSCI EM index by as much as 36 per cent.

That equity valuations in India are high raising fears of major corrections are borne out by Nifty price to earnings ratio of 24.5 compared with the five-year average of 21.03. Besides the uniqueness of a growing desire of the people at large to be part of a market that for 18 months has moved in one direction, some minor corrections now and then notwithstanding, the easy monetary policy here and in major economies enabled major flows of FII investments in Indian equities sending many of them to stratospheric levels.

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Who is not trying to take advantage of the bull market where large, medium and small caps are all participating in the rally? Many of the start-ups that have over a period of time become unicorns (venture capitalist Aileen Lee chose the mythical animal to describe privately owned new ventures that secure valuation of $1 billion or more) have taken advantage of the bull run to make initial public offerings at hefty premiums. They are not the only ones to make hay as the market shines. Small finance banks, established finance groups such as Aditya Birla Sun Life AMC, which is the country’s fourth largest asset management company, new born fintech groups and real estate companies have found the time opportune to raise funds by issuing shares as the central government remains on diluting its stake in PSUs. Many promoters are too found cashing in by diluting their holdings. While all the IPOs so far this year got fully subscribed notwithstanding the high premiums the promoters are charging for shares on offer, not all are seeing further appreciation on listing. Paras Defence and Space Technologies, however, surprised the market fraternity when its IPO got subscribed 328 times, the most since 2007.

The rewards from investment in shares done with prudence and intelligent reading about working of listed companies being much higher than fixed deposit returns whether the money is left with banks, companies or several government sponsored schemes, it is highly predictable that people from all walks of life and from all parts of the country will seriously consider using surpluses available with them to build a portfolio of shares. The growing ranks of people being savvy in using smart phones and computers and total digitisation of share trading have spared investors the bother to place orders with brokers for trading. Many are also finding it convenient to use the systematic investment plan (SIP) to put a fixed amount every month in various schemes of mutual funds. Some of these funds have been able to give attractive returns to investors. This cannot be otherwise when the market is on rise over a long period. That continues to encourage many others to use the SIP facility to build wealth. The more resourceful and informed Indians have started investing in shares listed on the US and other foreign stock exchanges through mutual funds.

Newspapers and TV business channels will from time to time feature the incredibly large capital gains the likes of Rakesh Jhunjhunwala and Radhakishan Damani are making on their investments in shares. Broking houses are in consensus that such stories are proving motivational for growing numbers who are still to become market participants.

What is also aiding expansion of the investor base going beyond principal cities to what is called Bharat is the message that much is to be gained by making knowledge based investment in shares. One thing that investors are not short of is information about companies. At frequent intervals, major broking houses will publish their assessment of working of companies whose shares are actively traded on the bourse. From time to time, their reports throw light on small and mid cap companies. The good thing is the market is no longer rumour driven and with SEBI vigilance being thorough insider trading has been largely curbed. In any case, many investors irrespective of their age and sex who came in recent times make efforts to read up as much as possible, including company annual reports before picking up shares.

Who could have thought some years ago that Ranga Reddy district Telengana or Barpeta district in Assam will be among the country’s top districts generating the maximum numbers of new investors since March 2021? It is a given that Delhi and Mumbai will always be at the top of the table for their share of the country’s investor community, old and new and the funds they bring to the market. According to National Stock Exchange data for August Delhi had a share of 5.9% of total new investors, followed closely by Mumbai with 5.8%. Pune had a share of 2%, Ahmedabad 1.9%, Surat famous for diamond polishing and trading 1.6%, Bengaluru 1.6% and Jaipur 1.5%.

Encouragingly, the demographic profile of investors is changing with growing numbers of young people, including students and those who have recently started working on completion of education putting a decent portion of their savings in stocks either directly or through mutual funds. The ranks of women investors, including housewives, continue to grow. According to Capstone Consulting, women now constitute approximately 20% of the country’s active traders. As many as 80% women investors are from tier 2 and tier 3 cities. They are generally low risk takers and long-term investors. Many of them are found to be taking investment decisions on their own.

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24 days ago

The bullish sentiment in our stock market is unmistakable. But the article, appropriately, strikes a cautious note. In periods of excessive euphoria, it makes sense to invest judiciously in fairly priced shares for long term capital appreciation

Krishna Rupam
Krishna Rupam
24 days ago

I shall not be surprised if more and more women join the ranks of investors and owners of company shares. Haven’t we have in our country some brilliant women bankers! What is encouraging is that very young people are using part of their savings to play the market. Hope they don’t become greedy.

Sarvadaman Ray
Sarvadaman Ray
24 days ago

Another area not covered in this article is that SEBI has issued licences to many “Portfolio Advisors”, who in turn are educating the Gen Z investors through Ytube in regional languages making them understand the risks and rewards of investing in Stocks and bonds. These Ytube channels have huge subscribers and with online investment portals like “smallcase” and ”Zerodah” having integrated the investing process which is smooth and cheap are also encouraging the new investors. Without spending too much time. Smallcase has ideal portfolios online designed for all types of investors whether big or small and by paying a small fee, one can straightway invest in stocks. Once you subscribe, you also get alerts for switching or selling your portfolio depending on the market situation.

Kunal Bose
Kunal Bose
23 days ago

Eminent journalist and commentator Sumit Mitra says: “You’re absolutely right. The current rush for equity investment is fuelled by falling FD interest rates. And the younger of the punters are quickly learning the ropes of the f&o market.”

23 days ago

Another insightful article by one of the best , finest and honest financial commentator that I have come accross . I am a very small and humble investor and have an experience of 27 years overseeing this market . I have started with a broker who hung himself , not being able to manage his debts having cheated many . So , this market is not kind to everybody . I have known one technical analyst who once said that his driver asked him ” aaj keya lena hai ” and he concluded that was the point in 2008 to call a market top . Having said that , I have full respect to new investors but with a disclaimer that a market driven mostly by liquidity doesn’t sustain for a long time . I , as a trained Accountant haven’t seen much upgrade in fundamentals except for some big opportunities that have arisen due to domestic push in manufacturing . One Indian entrepreneur who was 5th in Forbes list has declared himself bankrupt . Lot of builders are in jail . My view is all is not well and investors who don’t question rationale may end up disappointed sometime . It takes years to build a portfolio and it takes some days , as in 2020 March , to destroy many who are leveraged . So , fingers crossed.

Anirban Dasgupta
Anirban Dasgupta
22 days ago

Thanks Kunal da.As always you have nailed the right spot.
But the actual challenge will be the falling market scenario.
Historically whenever there is a plethora of IPOs markets have fallen or corrected as per technical language.
Hope our nextgen will be smarter to deal with that.

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