The COVID pandemic and related lockdowns forced most of the people to remain confined to their homes, harshly reducing their incomes. However, as the maxim goes, fortune favours the bold, lakhs of the people turned towards the share market to augment their income. It is reflected in an increased ownership in more than 1,500 companies listed on the National Stock Exchange of India jumping to 9 per cent in the third quarter of 2020, the highest since March 2018.
Even as many of the lockdown restrictions were lifted, the retail investing fervor continued. Central Depository Services (India) opened a record 1.47 million accounts in January, up more than threefold from the same month in 2020, and 1.36 million in February.
There has been notable increase in the market capitalization in stock markets across the world in the last one year. However, in India it has been higher than other major countries. The market capitalization of BSE Sensex has increased by 1.8 times its value one year ago. Russia registered 1.6 times increase, followed by Brazil, China, France and South Africa.
The increased retail participation coupled with positive global cues and abundant liquidity has fuelled a sudden rise in the benchmark indexes of the country. The S&P BSE Sensex and the Nifty 50 have rallied around 102 per cent since their March 2020 low. Gains in the mid, and small-cap stocks, considered favourites of retail investors, have outperformed on the BSE with a rise of 130 per cent and 180 per cent during this period. Among sectors, investors have flocked to are healthcare, IT, auto and bank stocks.
According to a study conducted by State Bank of India (SBI), the number of individual investors in the market has increased by a whopping 142 lakh in 2020-21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. It said that greater retail participation has also led to increased investment in stocks and mutual funds in the second half of 2020-21 and this higher retail participation in stock markets may become more of a self-fulfilling prophecy. Another 44.7 lakh retails investor accounts have been added during the two months of the current fiscal. Also, the share of individual investors in total turnover on stock exchange has risen to 45 per cent from 39 per cent in Mar 2020, as per NSE data.
“Lower rate in other saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market. Another reason could be the significant increase in global liquidity. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals’ tilt towards the stock market trading. This has led to increased investment in stocks and mutual funds in H2 FY21 and this higher retail participation in stock markets may become more of a self-fulfilling prophecy,” wrote Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India.
The study elaborated that the share of savings in shares and debentures to total household financial savings, which stood at 3.4 per cent in financial year 2019-20 is likely to increase in 2020-21 to 4.8 per cent to 5 per cent of the total household financial saving, indicating the significant upside to household participation in equity investment.
Myth and Reality
Of 1.36 billion Indians, only about 3.7 per cent invest in equities, compared with about 55 percent in US and 12.7 per cent in China, according to stock depository data on the number of investment accounts. In the US, by contrast, a poll found about 55 per cent of the population owns stocks either individually or through a mutual fund.
In India people generally believe in keeping traditional physical assets, such as real estate and gold, as well as bank deposits. Farmers and the urban working class have traditionally relied on gold as both an insurance policy and a retirement plan in a country that lacks robust social welfare systems or widespread access to formal credit. But country’s new generation seems to be more inclined to take risks in the stock market. Technology, including more and more trading apps and social media—YouTube influencers, Twitter, and other social media stock-tipping chat groups—has fascinated hordes of people towards the stock market.
It is also being observed that the new craze for stock market is no more confined to big cities. More and more people from smaller town and cities are showing more interest in the trade. More than half of Angel Brookings’s new customers in the quarter that ended in December were from smaller cities and towns.
India’s mutual fund industry has also targeted small towns through television, social media, and billboard advertising.
A well-planned investments in the stock market can greatly contribute to efforts in wealth creation. However, traditionally, Indians approach the share market with caution and much hesitation as various myths and misconceptions about the trade has clogged their consciousness.
Like all investment instruments, stock market investments require good homework and preparation. Once an investor can overcome these and various myths about the share market, they too can utilise the wealth creation potential of the market.
All it takes is to get started on some research, develop some simple strategies and open an online trading account and demat account to start investing.
Trends must be encouraged
The ongoing trend must be encouraged by the government and the national stock exchanges through various incentives and tax relaxation as a strong financial market with broad participation is essential for a developed economy.
With India's growth story unfolding, there is a need to raise resources for companies to fuel the capital needs of the economy and also guarantee that the benefits of growth percolate to bottom of the socio-economic pyramid.India's household savings, one of the highest in the world at more than 30%, can be channelized through equities, bonds and other instruments to achieve greater financial inclusion and improve the state of financial markets.
The increasing retail participation, if it becomes the norm, could enable a larger resource pool for financing India's infrastructural requirements.