In a strange twist, there is unease about the entry of new retail investors into the equity market. In an inexplicable turnaround, those who were till the other day talking about how the Indian equity market is under-penetrated with just only 1-2 per cent of the population having direct exposure to equity markets, have overnight turned uncomfortable with the entry of new-age investors.
This scepticism is not an Indian problem alone. It has infected many across the world, with experts in developed countries such as the US blaming the entry of new-age investors, called Robinhood investors, for the steep valuation of stock markets.
‘Talk of market peak’
Some even believe the entry of new investors into the trading pit is a clear signal of markets topping out and an impending crash.
Every bull market is built on hope, but the continuing upward march of Indian equities has strengthened the confidence of new investors.
Currently, individual demat accounts in India stand at 6.25 crore, of which Central Depository Securities Ltd alone has four crore while the rest is managed by National Security Depository Ltd. The growth of accounts in CDSL has been phenomenal as it added the last one crore accounts in just 150 days; CDSL crossed the 3-crore mark on February 13. Even more interesting is the spread of the investor base with many accounts being opened from Tier 2/3 cities and even villages.
IPOs to attract more
With a flurry of high-profile initial public offerings such as LIC, Paytm, and Mobikwik, individual interest in the stock markets is likely to grow strongly. Of course, a part of this comes on the back of robust performance since March 2020 and the FOMO (fear of missing out) factor. Additionally, with deposit rates near rock-bottom, equities are the go-to asset for investors hoping to beat inflation.
Together, these factors may push individual demat account additions higher, experts believe. If CDSL and NSDL maintain their current strike rate, demat accounts could hit 10 crore within the year.
New retail investors are also coming to capital markets through the mutual fund route. For instance, the number of mutual fund folio accounts rose to 9.78 crore at the end of March and, according to industry experts, the figure would have crossed the 10 crore mark by now.
Financial inclusion
Should one really about worry the entry of new investors and presume that this set does not have the knowledge for direct entry of markets? The fear that retail investors will always make mistakes is unfounded. Just like not all retail investors are not the same, even institutions slip up on returns. Even the most sophisticated professional investor could not foresee events such the Lehman Brothers’ collapse, crude oil slumping below zero, etc.
At a time when everyone is talking of financial inclusion, new retail investors should be welcomed to the system.
As SEBI chief Ajay Tyagi said the other day, there is a need to sustain retail investor interest in the markets after their overwhelming participation in Indian securities in recent times. “The task before us is to sustain growing investors’ interest by maintaining market integrity, simplifying processes, ensuring robust risk management, introducing new products and increasing awareness.”
One cannot agree with him more.