Retail Investors on Driver’s Seat, Recent Rally Based on Retail Buying

In the last week until Monday’s morning session, the NSE’s Nifty 50 has gained over 600 points whereas BSE’s Sensex has soared over 1800 points in the same span. The rally has taken both indices to new all-time highs and pushed the market capitalisation even higher.

The retail investors have been the net buyers despite selling from FPIs and DIIs. This shows valid evidence of retailers absorbing domestic and foreign institutions’ selling and pushing markers higher.

This is not a restricted move but an overall rally since the participation can be witnessed with NSE’s broad-based indices taking part. From Nifty 50 to Nifty 500, indices are soaring to new highs.

Positive sentiments of retailers are not confined to the Indian population, even the US index Dow Jones indicated a strong rally due to retail participation there. Dow Jones was up by more than 1% on Thursday and Friday of the last week.

What does the data indicate?

Based on the data published by brokerage houses, there has been a consistent increment in retail investors. Since the beginning of FY 2021-22, 1.52 crore new accounts have been opened by retailers.

The exchanges or regulators do not provide data on buying or selling activities of retail investors but the data available on FIIs and DIIs shows the buying from institutions has reduced yet the markets keep rallying. It indicates that retailers are consistently buying.

According to the data provided by National Securities Depository Limited and Central Depository Services (India) Limited, the total retail investors’ count has reached 7 crores until Sep 2021.

The numbers also reveal that when Nifty 50 soared from 16000 to 18000, FIIs had invested only INR 135 billion. Earlier, for each thousand point rally starting from 12000, FIIs had invested INR 450 billion on an average. Similar data of DII’s activity reveals that from 16000 to 18000, DIIs had invested INR 192 billion.

Since the beginning of FY 2021-22, domestic institutions have made purchases worth INR 530 billion. On the other hand, foreign institutional investors have been net sellers of equity worth INR 210 billion.

As per the volume data from NSE, until a couple of years back, 1/10th of the total trading volume used to come from mobile phones. Now, this volume has doubled to 1/5th of the total trading volume. Easy to use smartphone applications by brokers have led to this increment.

The total holding of retailers in NSE-listed companies was over 7% in June 2021 compared to 6.5% at the end of 2019. Though it has reduced dramatically while Nifty was trading below 10000, the participants started to increase after September 2020 again.

Key takeaways

The analysis of all the data indicates that there has been a paradigm shift in the application of money since the pandemic. The public at large has started to shift their funds from conventional assets like precious metals, immovable properties, fixed deposits to modern high-growth assets like equity.

Lockdowns have induced many retail investors to participate in active learning about stock markets and make informed decisions based on personal research. Many new portfolio managers have emerged during the period pushing retailers’ knowledge and awareness to a higher level.

With modern FinTechs penetrating markets like never before, buying and selling equity has become a one-touch activity using smartphones. This has led to an increase in daily trading volumes.

FAQs

Who are various market participants?

Anybody who buys and sells in the market is called a market participant. Retail investors like us, domestic institutions, foreign institutions, foreign retail investors, brokerage firms, high net worth individuals, asset management companies, investment banks, etc are all market participants.

What is a broad-based index?

Broad-based indices are indices comprising liquid blue-chip companies on the exchange. They symbolise a standard for determining how the companies and sectors are performing. Some of the board-based indices of NSE are Nifty Next 50, Nifty 100, Nifty Midcap 150, Nifty Smallcap 250, Nifty Mircocap 250, etc.

What services do Depository Participants provide?

Depository participants, CDSL and NSDL, provide services including the opening of Demat account, dematerialisation of shares, settlement of transactions, pledging of shares for a loan, etc.