Retail investors have emerged as a major cohort in India’s $3-trillion stock market during the COVID-19 pandemic. Their immense buying power in the last year has dwarfed goliaths like domestic and foreign institutional investors.
In 2021, retail investors were net buyers of stocks worth $19 billion in the cash market, data released recently by the National Stock Exchange shows. By comparison, institutional investors were net sellers of Indian stock worth $7 billion in the same period.
The net inflow of $12 billion in the stock market in 2021, therefore, came entirely from the wallets of retail investors. NSE defines retail investors as individual investors, non-resident Indians, sole proprietors and Hindu Undivided Family.
“Institutional class as a whole, and rightly so, has become a lot less important,” veteran investor Shankar Sharma told Moneycontrol in a post-Budget panel discussion.
The strong inflows are in keeping with the surge in the number of dematerialized (demat) accounts opened with depositories. In January, total demat accounts with CDSL and NSDL stood at 8.1 crore, more than double the 3.6 crore accounts at the end of March 2019.
The buying power of retail investors was single-handedly the driving force behind the 24 percent rise in the domestic benchmark indices in 2021.
The presence of retail investors was more prominently felt in the broad market, which remains the go-to pocket for their ilk.
The relentless buying from retail investors helped the Nifty Midcap 100 and Nifty Smallcap 100 index clock gains of 46 percent and 60 percent, respectively.
Also read: Budget 2022: FIIs & Retail investors are in a tug-of-war over D-Street’s fate
United we invest, divided we exit
While the quantum of money poured in by retail investors may seem impressive, what has been remarkable is the shift in the behaviour of the average investor in the stock market.
“There is much greater awareness in midcap and smallcap space, and that's where retail is making a lot of its money. They don't run away when they see drawdowns in the market,” Safir Anand, an independent investor told Moneycontrol in a post-Budget panel discussion.
While some may attribute the ‘buy-the-dip’ mentality exhibited by retail investors to the thousands of Warren Buffett quotes that inundate social media during market corrections, the credit should go the industry’s recent efforts towards improving investors’ understanding of the market.
Consuming their financial news and receiving expertise from social media platforms like Twitter, Discord, and YouTube has also created a “bee hive” behaviour among retail investors, said experts.
Information asymmetry, often the scourge of retail investors, has also reduced dramatically, thanks to the fast distribution of information through WhatsApp and Telegram.
“While individually they (retail) may not amount to much, but collectively the buying power they now bring to the table is fantastic,” Shankar Sharma said.
An example of the HODL (hold on for dear life) psyche of the new investors is the fact that in the quarter ended December, where foreign investors were net sellers of equities worth nearly $5 billion and broad market stocks saw steep correction, retail investors raised their stake in more than 1,000 NSE-listed stocks.
Lessons for Corporate India
For Corporate India, accommodating institutional investors has always been the priority, be it in terms of capital allocation strategies or even environmental, social, and governance-related policy decisions.
Sharma believes that they should turn their attention towards retail investors now. “What will drive your stock price are domestic investors, and I am not talking about mutual funds, but retail investors,” he said.
Securities and Exchange Board of India’s Commissioner Ajay Tyagi in recent speeches also advised companies to ensure timely disclosures and adherence to strong corporate governance standards in light of the enhanced participation of retail investors.
Retail investors are already exerting their power by expressing their sentiment for a company’s decision through stock price action as reflected in the case of Hinduja Global Venture recently and ITC’s embrace of some suggestions by its investors.
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.
