Comments
It’s now close to three years since Covid-19 first shook the world. We took stock of the journey of the National Stock Exchange’s Nifty 50 firms during this period in comparison with some of its peers such as the Hang Seng (Hong Kong), Nikkei (Japan) and the Dow Industrial Average (the US) indices. .
From 11,132.75 on March 2, 2020, the index plummtted to a low of 7,511 a few days later. By March 2, 2023, the Nifty had grown 55.6 per cent over a three-year period. Compare this with 22.3 per cent for the Hang Seng Index (HSI), 28.84 per cent for Nikkei, and 23.59 per cent for the Dow over the same period.
Russia ‘invades’ global stock markets
Russia’s invasion of Ukraine on February 24 last year exacerbated the supply chain uncertainty even as it made the world multipolar.
The war also led to increased volatility in the stock markets. In fact, the NSE’s India VIX, which measures expected short-term market volatility, rose to a high of 32 on the day of the invasion. One year on, the volatility index on Nifty had come down to 14 (see chart), indicating return to some stability, however fragile.
During April-December 2022, global stock markets declined due to this geopolitical crisis that triggered a rally in the price of key raw materials, including crude oil, spurring inflation across the world.
This pushed the US Federal Reserve and other central bankers to take a hard look at benchmark interest rates to rein in runaway inflation. The US rate, in fact, was hiked from zero to a quarter percentage point in March 2022.
In this period, Indian stock markets showed resilience, with the blue-chip index Nifty 50 registering a return of 3.7 per cent, with only a marginal effect on the volatility index. It may be recalled that during the peak bear market in 2008, VIX, or the fear gauge as it is widely known in market circles, zoomed to a high of 92.53 on November 14 of that year.
Covid trigger
The domestic market derived its strength from new young investors who came in hordes post Covid. This was confirmed by Finance Minister Nirmala Sitharaman when she said that there had been a significant increase in the retail investors’ base during the pandemic.
According to her, the retail investors “seem to act like shock absorbers”, especially during the heavy FPI sell-off witnessed during early- and mid-FY23.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said the explosive growth in demat accounts began from April 2020, the peak of the Covid lockdowns.
Data from CDSL and NSDL show that from 4.02 crore at the end of FY20, the number of demat accounts had risen to 8.96 crore at the end of FY22 (see chart).
The growth in demat account follows the trajectory exhibited by the NSE benchmark Nifty 50.
“After the crash in March 2020 triggered by the Covid-19 pandemic, the market staged a unique one-way rally which took the Nifty from the low of 7,511 in March 2020 to a high of 18,604 in October 2021,” he explained (see chart).
Coinciding with this growth in markets, 35 lakh demat accounts were added in October 2021. According to him, a lot of ‘easy money’ was made during this rally. Newbie investors started active day trading and even began trading in derivatives.
The news of spectacular returns from the market and newbie traders making money triggered the FOMO (Fear Of Missing Out) factor, which attracted even more investors. By January 2023, the total number of demat accounts had reached 11 crore.
War-hit VIX impact
But, in keeping with the cyclical nature of the market, the growth in new demat additions also witnessed some slowdown, as broader markets started to suffer.
The first nine months of FY23 saw 1.88 crore accounts being added in comparison with 2.96 crore additions for the same period a year earlier (April-December 2021 or the first nine months of FY22).
According to the Economic Survey 2022-23, the incremental additions of demat accounts have been on a declining trend during FY23 relative to FY22, “probably because of the increased volatility in the secondary market and subdued primary market performance, amid prevailing global headwinds during the current financial year.”
Admitting that there is has been a steady decline in the number of active accounts and day trading in recent months, Vijayakumar pointed out that the primary reason for this “waning interest is the poor performance of the market, particularly the poor returns from small-cap stocks in which retail investors mostly invest”.
In fact, the one-year return for the Nifty Smallcap 100 index is minus 5.6 per cent, he added.
Besides, better-than-before returns from fixed deposits are also corroding the charm of the stock markets. Investors are seeking capital protection and consistent returns, something that the volatile stock markets do not offer now.
“So, many investors have moved away from risky equity investment to safer fixed income investment,” said Vijayakumar.
The silver lining, according to him, is that mutual fund inflows “continue to be robust and the monthly SIP inflows are very encouraging at around ₹13,000 crore”. This is the healthiest trend in the market right now, he added.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.