Retail Investors Ruling The Indian Stock Market

• Foreign portfolio investors are pulling out money, but domestic investors are keeping up market sentiment
• Domestic investors, including retail investors, HNIs and domestic institutional investors, are driving the market
• The share of domestic investors has overtaken FPI inflows in 2021-22

The Indian stock market seems to be maturing day by day and so are the investors. The corrections after the 2021 rally did not deter the retail investors to invest in the market. Systematic investment plan (SIPs), a favourite with investors looking at investing in the equity market through mutual funds, have been witnessing high inflows. The inflows reached an all-time high in the month of March, at Rs 12,328 crore.

So, while at one side foreign portfolio investors (FPIs) are pulling out money from the market, on the other, domestic institutional investors (DIIs) are pumping money in the market. The market direction, which used to be largely decided by the FPIs, seems to be dictated by domestic investors. This is evident from the limited market fall despite record FPI outflow. As per the Central Depository Services Limited (CDSL) data, FPIs have pulled Rs 1,75,198 crore from January 1, 2022 till May 28, 2022. They have pulled Rs 1,66,299 crore from equities alone over the same period.

Increasing Share of Domestic Investors

Research by Prime Database shows the emergence of an interesting dynamic in the market. According to Prime Database, the share of retail (individuals with up to Rs 2 lakh investment), high net-worth individuals (HNIs) and DIIs in companies listed on the National Stock Exchange (NSE) as a whole reached an all-time high of 23.34 per cent as on March 31, 2022, well above the FPI share of 20.15 per cent, showcasing the rise of domestic individual investors and the huge counter-balancing role they have played against foreign investors.

To put this in perspective further, as on March 31, 2015, the FPI share was 23.32 per cent, while the combined share of retail investors, HNIs and DIIs was just 18.47 per cent.

Interestingly, on the domestic front, the share of retail investor in companies listed on NSE is almost the same as the share of domestic mutual funds with 7.42 per cent and 7.75 per cent, respectively, as on March 31, 2022.

More Demat Accounts, More Retail Money

The multifold rise in the number of demat accounts in the last two years shows how retail investors are reposing their faith in the growth of the Indian economy.

According to two depositories, NSDL and CDSL, the total number of demat accounts is 9.28 crore as on April 30, 2022. This number is almost three times the number recorded as of March 2020. According to CDSL, the total number of demat accounts was 2.12 crore in March 2020, which has grown to 6.50 crore in April 30, 2022.

A higher number of demat accounts means there is more money from the retail investors in the stock market.

The share of retail investors in companies listed on NSE reached an all-time high of 7.42 per cent as on March 31, 2022, from 7.33 per cent as on December 31, 2021, as per primeinfobase.com, an initiative of PRIME Database Group. In Indian rupee value terms, too, retail holding in companies listed on NSE reached an all-time high of  Rs 19.16 lakh crore from Rs 19.05 lakh crore on December 31, 2021, an increase of 0.56 per cent.

MF Inflows Adding to DII Growth

Equity mutual funds have been consistently attracting inflows amid a volatile stock market environment and continued FPIs outflow. This segment has seen net inflow in the last 13 consecutive months. The higher inflows have led to higher holdings in listed companies.

The share of DIIs, which include domestic mutual funds, insurance companies, banks, financial institutions, pension funds and others, also increased to 13.70 per cent as on March 31, 2022 from 13.21 per cent as on December 31, 2021, on the back of net inflows from DIIs of a huge Rs 1,03,689 crore during the quarter. In rupee value terms, DII holding too went up to an all-time high of Rs 35.35 lakh crore as on March 31, 2022, an increase of 3.05 per cent over the last quarter.

Conclusion

The Indian retail investor has realised the importance of equity investing. Equity could be volatile in the interim but has the potential to deliver better returns in the long term. The early you start, there is a fair chance of making better returns in the long term.

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