Of course, retail investors invest in the markets in much smaller amounts than institutional investors. But their huge numbers in 2020-21 surprisingly rocked the markets. Consider the January 2021 flashpoint where GameStop was growing and the term “meme stock” was coined. Reddit users took on institutional traders, backing GameStop’s stock and sending the share price up more than 1,700% compared to December. In fact, Credit Suisse estimated that a third of all Share Market Retail investors account for trading in the US in 2021.
Source: Bloomberg Intelligence
India has also not lagged behind in the boom of retail investors across the world. a look at the situation retail investor in India.
numbers say it all
A major shift in investment trends began in the post-pandemic 2020, when active investor accounts in India grew by a record 10.4 million. At the same time, retail stock ownership in 1,500+ companies listed on the National Stock Exchange (NSE) grew by 9% in Q3 2020, the highest increase since March 2018.
Retail investor participation continued to grow rapidly in FY2011 as well, with nearly 4.5 million retail investor accounts added in the first two months of the fiscal year. There was an astonishing growth of 14.2 million in the total number of retail investors in FY 2011, 12.25 million new accounts were opened in NSDL against 1.9 million CDSL.
the result is that Indian stock market Now retail investors dominate. The share of retail investors in NSE alone increased from 33% in 2016 to 45% in 2021. Interest is also not waning, with monthly registrations of new investors hitting an all-time high of 1.5 million in June 2021.
The trend is broader than that of equity markets
The rise of retail investing is not limited to stock trading on exchanges. Equity mutual funds have also witnessed a jump, with individual investments increasing by 16% in February 2021 as compared to the same month of the previous year.
Unparalleled retail interest has also been seen in the futures and derivatives markets. The index futures market, which forms a major part of the Indian derivatives market, saw individual investors outdo the institutions. In fact, 39% of the index futures market is held by retail investors, with foreign investors (FIIs) making up only 15%.
This rise of individual investors is part of a broader shift among Indians away from traditionally preferred physical assets, such as gold and real estate, as well as bank deposits.
Tier 2 and 3 cities progressed
This is not the first time that India has seen a boom in retail investment, but it is certainly the first time that these first-time investors from outside the metros of Delhi and Mumbai are joining the financial markets. There is an increasing number of new clients coming from small towns and cities in the country to brokers and investment firms.
The investment pattern across sectors has also changed over the past two years, although the total number of new registrations continues to dominate the northern and western Indian regions. As of June 2021, northern India accounted for about 37% of the total registrations, while eastern and south India saw an increase in retail interest compared to 2020.
Source: NSE
Drivers of the Rise of Retail Investments
A major reason for this phenomenal growth in individual investors has undoubtedly been the pandemic. This is a trend that has been observed all over the world. With wage cuts, job losses and an uncertain economic future, lockdown, lakhs of people are stuck at home looking for ways to enhance their financial status.
But such a significant impact of the pandemic alone could not have happened without the support of technology. Firstly, the reach of internet in the far flung corners of the country opened up a whole new world of online access for Indians. It also means better access to investment education, market news and increased awareness of different forms of investing.
In addition, a significant percentage of investors from Tier 2 and 3 cities gained access to new asset classes and portfolio diversification tools. The entry of investors from smaller towns and cities has played an important role in the changing investment landscape in India.
Technological advances have empowered investors with robust tools for online trading, which provide transparency and access to real-time price movements. This is a major change from the past, when real-time trade execution was rare, given that access to the markets was through multiple phone calls to brokers and other market participants.
Technological advances have also brought us easy-to-use investment apps, while social media has given us access to all the crap in the investing community. Twitter, Telegram, Reddit, etc. are home to large and very active investor communities who are always ready to provide their market analysis and investment opinions.
In addition, low interest rates have made traditional investment methods such as fixed deposits and debt instruments less attractive. Therefore, investors are looking for new avenues that will offer inflation-proof returns.
Is this a temporary trend?
So, is this a fleeting event that will return once the economy recovers or is it just the beginning of behavioral change in India and across the world? It certainly looks like retail investors are here to stay and grow in numbers. This change will be fueled by more Millennials and Gen Xers joining the financial markets. His approach towards investing is very different from that of his predecessors.
In fact, as digital infrastructure continues to grow and digital natives continue to enter a larger number of markets, some experts estimate that online trading in India could reach a value of $14.3 billion by 2025.
investment technology market in india
Another factor fueling this trend and ensuring that it will continue for a long time is social media. From the subreddit Wallstreetbets, which drove GME and AMC to record highs, to an active trading community on Twitter, and even WhatsApp messaging groups, there’s an entire ecosystem supporting today’s retail investors.
I think it would be safe to say that we are witnessing a revolution in the financial markets that will change the future of investing.
(Author Mr. Dhiraj Relliis the MD and CEO of HDFC Securities. Opinions are his own.)