10 million new demat accounts and counting, why retail investors' love affair with market will continue
Representative image | Source: Unsplash
The year 2020 was unlike any other in recent memory. The coronavirus outbreak, which is yet to ebb even after a year, killed hundreds of thousands of people and wrecked economies. Lockdowns forced millions of people to stay at home, devastating businesses and triggering huge job losses.
But it was also the year when markets after sinking to new lows made a remarkable turnaround. It was also the year when retail investors took to markets in droves. About 10 million new demat accounts were opened in 2020 as retail investors, confined to their homes, got time to study and manage stocks.
A large number of demat accounts were opened in the April-June quarter of FY21, suggesting that such investors were trying their hand at stock trading instead of leaving it to fund managers, said Siddharth Sedani, Vice President, Equity Advisory, Anand Rathi Shares and Stock Brokers.
Several factors are behind the rise of retail investors in India.Close
"Lower cost of trades with research value addition, an industry-wide shift to online trading has made it easy for individuals to trade. This allowed retail investors to easily start trading when the lockdown was put into place to curb the spread of coronavirus," said Sedani.
Investors were rewarded for taking risks in CY2020. As mutual funds broadly underperformed the market and volatility remained high, equity-oriented funds continue to see outflows in the last six months.
With markets scaling new peaks, the rate of redemptions in equity funds picked up, indicating investors were looking to book profits given the higher valuations.
However, outflows from equity mutual funds came down in December 2020, the monthly data released by the Association of Mutual Funds in India (AMFI) shows. Equity funds saw net redemptions worth Rs 10,147 crore in December 2020 compared to Rs 12,917 crore in November 2020.
Sacchitanand Uttekar, DVP-Technical (Equity), Tradebulls Securities, is of the view that there could be a likely shift in "flavour" as participants remained more focused on short-term commitments, arbitrage opportunities and hybrid investment vehicles due to a lack of confidence in investing for the long term at such high valuations.
The availability of myriad platforms has also made it easier for retail investors. Online investments platform Paytm Money has launched futures and options (F&O) trading on its platform, the company announced on January 13.
The Bengaluru-headquartered company is offering all F&O trades at a flat rate of Rs 10, without any commitments, packages, or contracts.
F&O launch completes the entire gamut of services offered by the investment platform, which started with direct mutual funds and then went on to add gold, stock trading, IPO options and even pension investments and exchange-traded funds.
Such facilities offered more options to investors for active investing, experts said.
While stellar gains may lure retail investors to go for direct trading, the rich valuation ignites fear of a correction as the economy is yet to pick up the desired pace.
A deep correction will test the patience and risk-appetite of retail investors. However, even in that case, experts said the number of retail investors will continue to rise.
"This is a global trend. We have seen new retail participation the world over and this has been more pronounced post the market fall in March. However, we need to see the behaviour of these new investors post a market correction. Investment in the market seems promising with a long-term perspective so we believe this trend to continue," Sedani said.
As markets are at new highs, investors may further redeem from the equity markets and may look for alternative investments like real estate, cryptocurrency, etc.
The long-term outlook for the Indian market is positive. With the improving macroeconomic environment, regulatory reforms and increasing financial literacy, markets will see retail investors coming.Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.