Traditional cities lose grip on stock trading as non-metros emerge as big hotspots

The post-pandemic period has seen an influx of new investors coming from non-metro locations or Tier 2/3 towns as awareness about equities increased and physical and traditional assets like real estate, gold and fixed deposits took a slight beating.

The stock market trading pattern in India has undergone a paradigm shift as cities like Delhi, Kolkata, Jaipur, Indore, Hyderabad and Coimbatore, among others, that once contributed significantly to the market volume, have been edged out by newer locations especially from the Tier 2/3 segment.

Data from the Securities and Exchange Board of India (SEBI) shows that most of the cities that were part of the top 20 in terms of share in the total cash market turnover have seen their share dip in the last 10 years as an increasing number of investors from the far corners and interiors are coming to the markets.

Latest data shows that the share of ‘other’ cities on BSE has jumped from 18 percent to 32 percent between FY14 and FY24. 'Other' cities as a category includes those that are not part of the top 20 cities in terms of contribution to the cash market turnover.

More importantly, 15 cities that were earlier part of the top 20 locations have seen a dip in their share if the data from FY14 to FY24 is taken into account. Cities like Mangalore, Bengaluru, Coimbatore, Patna, Ernakulam, Kanpur and Bhubhaneshwar have also seen their share dip on BSE.

On the National Stock Exchange (NSE), which is the bigger bourse in terms of trading volume and market share, cities like Ludhiana, Coimbatore, Jaipur, Vadodara, Indore, Chennai, Rajkot, Hyderabad and Delhi have seen their share fall in the last 10 years.

On the other hand, cities like Bengaluru, Ernakulam, Pune and Kanpur have seen their contributions inch up marginally during the period.

The trend corroborates the view that the last few years – especially the post-pandemic period – have seen an influx of new investors coming from non-metro locations or Tier 2/3 towns as awareness about equities increased and physical and traditional assets like real estate, gold and fixed deposits took a slight beating.

“The last 4-5 years has seen the rise of influencers and social media that has enhanced the awareness level across many cities that earlier did not have a vibrant equity investment culture,” says Gourav Munjal, CFO, 5paisa Capital, a discount broking firm.

“The rising awareness made many people aware that there are better and more liquid options available compared to real estate and fixed deposits. If you see the new account additions in the last few years, a majority have come from Tier 2/3 locations. Also, the one-way rally that we saw till recently has attracted many first-time investors from newer locations,” added Munjal.

Incidentally, the number of investor accounts, as reported by NSDL and CDSL, jumped from 11.45 crore to 15.14 crore between FY13 and FY14. The rapid huge rise in investor accounts can be gauged from the fact that there were only 5.5 crore investor accounts in FY21.

Meanwhile, even as newer locations are coming to the fore in terms of stock market investing, the two traditional hotspots of Mumbai and Ahmedabad continue to account for a huge majority of stock market turnover.

According to SEBI data, the cumulative share of Mumbai and Ahmedabad in the total turnover in the cash segment in FY24 was pegged at nearly 61 percent on BSE, while it was nearly 82 percent on NSE.

Ahmedabad, however, has managed to outpace the financial capital city Mumbai in terms of market share. Ahmedabad accounted for only 5.5 percent of the cash market turnover of BSE in FY14, which has jumped to 23.12 percent in FY24 even as Mumbai saw its share dip from nearly 57 percent to 38 percent during the same period.

Even on NSE, Ahmedabad’s share has risen from less than four percent in FY14 to nearly 16 percent in FY24. Mumbai, however, has managed to up its share on NSE, rising from 59.51 percent to 66.23 percent between FY14 and FY24.

Experts, meanwhile, believe that the growing clout of Tier 2/3 cities will only increase from the current levels as investors become more mature and learn to ride the various cycles of the stock market.

“Going ahead, you may see the share of newer locations rising since with the increasing awareness, investors are becoming smarter, which is proved by the stable and strong DII flows in the market. Retail investors also now understand that the downswings are temporary falls and can be used as buying opportunities,” says Munjal.