New investors: equity market inflated by surging retail sales

The total number of investor accounts in November 2021 stood at 7.7 crore (cumulatively by NSDL and CDSL) with a total investment of Rs 330 lakh crore.

By Yoosef KP

Individual participation in the Indian stock market has grown significantly over the past two years as more and more novice investors ventured into the market for better returns at a time when benchmark (repo) rates were. maintained at an all time high. The lockdown caused by the pandemic and the ensuing working from home with high internet penetration further increased their enthusiasm.

The two depositories – Central Depository Services (CDSL) and National Securities Depository (NSDL) – together added 286 new lakh accounts between April and November 2021, with CDSL itself representing 247 lakh new mat accounts. While CDSL added 30 lakhs of new demat accounts in November, NSDL saw an additional 4 lakhs added to the pot during the month. According to the December Sebi bulletin, on average, more than 26 lakhs of demat accounts were opened each month during the current fiscal year, compared to a monthly average of only 4 lakhs in 2019-2020.

The total number of investor accounts in November 2021 stood at 7.7 crore (cumulatively by NSDL and CDSL) with a total investment of Rs 330 lakh crore.

However, the retail investor often bears the brunt of stock market crashes, as this category tends to focus on small and mid-cap stocks. According to Prime Database, the retail stake in 1,034 companies listed on NSE increased in the September quarter with an average share price appreciation of just 3.78%, while it reduced its stake in 592 companies including the price increased 23.96% during the period.

According to Credit Suisse, despite constant net purchases by retail investors, their share of the BSE500 index has declined over the past 15 years, mainly because they have consistently underperformed the market. “Retail flows are expected to remain volatile in our view as stagnation sets in after the markets’ remarkable rise. However, this should not have a negative impact on the inflows of monetary funds and in some cases may even support them, ”the foreign brokerage said in a recent report.

As of September 2021, the aggregate retail stake in NSE’s listed companies stood at 7.13%, valued at Rs 18.16 lakh crore. Over the past year, the retail stake (persons with nominal share capital up to Rs 2 lakh) in Indian Energy Exchange has almost tripled to 26.48% through December 2021. Likewise, their holdings in Future Retail, Indiabulls Real Estate and Hemisphere Properties went between 10.2 percentage points (ppts) and 11.9 ppts, according to data from Capitaline.

Credit Suisse further argues that the financialization of savings and higher internet penetration may lead to increased retail inflows into the mid- and small-cap sector, while large caps may remain sensitive to selling off. short-term foreign portfolio investors (REITs). Even primary market retailer participation has grown over the past year, with several IPOs oversubscribed on day one within hours.

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