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India sees strong retail influx in market, but yet to be seen if it is transitory or long-term behavioural change: SBI

Abundant liquidity in the market seems to have facilitated the rise in the number of retail investors. Besides, lower rates in other saving avenues amid the low-interest rate regime have led to greater interest by individuals in the stock market.

June 22, 2021 / 11:46 AM IST

The Indian market is witnessing a strong influx of retail investors as the number of individual investors in the market has increased by a whopping 142 lakh in the financial year 2021 (FY21), with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL, an SBI Ecowrap report highlight.

The report further said that another 44.7 lakh retails investor accounts have been added during the two months of this fiscal.

SBI's report quoted NSE data and said the share of individual investors in total turnover on the stock exchange has risen to 45 percent from 39 percent in March 2020.

While the influx of retail investors has been robust and still growing, it is yet to be seen if this increasing retail participation is transitory or the beginning of long-term behavioural change.

"Increasing retail participation, if it becomes the norm, could also enable a larger resource pool for financing India’s infrastructural requirements. For example, the share of savings in shares and debentures to total household financial savings at 3.4 percent in FY20 is likely to increase in FY21 to 4.8-5 percent of total household financial saving, (or 0.7 percent of GDP from 0.4 percent of GDP in FY20) indicating the significant upside to household participation in equity investment," said the report.

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Abundant liquidity in the market seems to have facilitated the rise in the number of retail investors. Besides, lower rates in other saving avenues amid the low-interest rate regime have led to greater interest by individuals in the stock market.

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, the Ecowrap report pointed out.

The rise in the stock market without significant development in the real economy may raise the issue of financial stability which as per our financial stability index shows modest improvement in April 2021, but lower than the peak witnessed in December 2020. It is expected to have declined in May 2021, the Ecowrap report warned.

The Indian market has seen strong gains in the last one year and the market-capitalisation of Sensex has increased by 1.8 times.

Sector-wise one-year return in Indian stock markets indicates that IT and materials have performed better.

"This clearly indicates the movement in Indian stock markets is increasingly being clearly interlinked with a supposed infrastructure power play in coming days!," said SBI.

"There is also a renewed interest in healthcare stocks and financial stocks with stories of Indian financial ecosystem being effectively acting as a conduit of large liquidity finding investment avenues," it said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jun 22, 2021 11:46 am

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