The number of retail investors in India has been growing at a superlative speed, thanks to abundant liquidity and a plethora of trading apps that facilitated the pursuit of alternate sources of income for people.
Central Depository Services (India) Limited (CDSL) has become the first depository to have four crore plus active Demat accounts.
"CDSL is pleased to announce it becomes the first depository to open four crore plus (40 million) active Demat accounts. It is currently the largest depository in the country in terms of active Demat accounts," the depository said in a statement on July 8.
In the last one year, the number of retail investors has jumped more than 41 percent, data available with BSE showed. More than 7 crore investors were registered with BSE as of July 8.
Retail investors flocking the market
Experts point out that the COVID-induced market crash in 2020 and the subsequent recovery, easy availability of trading apps for the tech-savvy generation, work from home due to the pandemic and the pursuit of alternate sources of income seem to have fuelled the influx of retail investors.
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The FOMO (fear of missing out) factor is also a reason behind the surge in the number of retail investors. Many immature young investors are buying stocks blindly following the advice of some random people or even friends.
The TINA (there is no alternative) impact has also influenced many first-time investors to participate in trading.
Since the market started to clock strong gains after the March 2020 lows on liquidity doses by the central banks, many investors saw it as an opportunity to make quick money.
"There has been an explosive growth in retail trading accounts after the coronavirus pandemic. Retail participation is a desirable trend from the perspective of inclusive growth. Ordinary people participating in wealth creation through the stock market is good but unfortunately, most retail investors are indulging in reckless trading and losing money instead of systematically investing and creating wealth," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The strong influx of retail investors has pushed even those stocks to record highs that are fundamentally weak.
Experts have been voicing their concerns that irrational exuberance has made market valuations rich and the risk of a consolidation looms.
"I am more worried about the big correction in mid and small-cap stocks. There may be some correction in benchmarks also but I don't think the Sensex or the Nifty will fall badly. Overbought stocks in Nifty may fall and undervalued stocks of the index may rise," said G Chokkalingam, Founder and MD of Equinomics Research & Advisory.
Market analysts believe the number of retail investors may continue to grow and their growth rate may even accelerate further as the market is poised for clocking healthy gains in the long run after the economy picks pace and vaccination exercise bring COVID-19 under control.
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