The rise of retail investors



Ever since the Indian stock market became popular in the early 2000s, institutional investors, both domestic and foreign, were the dominating forces. Individual investors, also known as retail investors, barely had any presence. Only a handful of them participated in the stock market.

One of the primary reasons for the lacklustre involvement of retail individual investors was that the stock market was still in its nascent stage. And since people hadn’t quite understood how it actually worked, they were apprehensive of investing in it.

However, fast forward to the present, and you’ll see that things have shifted dramatically. The National Stock Exchange (NSE), one of the two premier stock exchanges of the country, states that the market share of retail investors in stock markets has now touched 45% as of FY2021. This stark new development makes individual investors the current dominant force in the Indian stock market.

What’s even more interesting is the fact that countries across the world are also witnessing a simultaneous rise in retail investor participation. In China, for instance, around 99% of the total investor base is made up of retail investors.

The rise of retail investors in India

Many attribute the rise in retail participation in the stock markets of India to the lockdowns enforced by the Indian government in 2020. However, contrary to popular opinion, this did not happen overnight.

A look at the number of demat accounts opened year after year gives a better perspective of how things panned out. In FY11, the total number of demat accounts was 19 million. In FY12, this number grew to 19.9 million, which is an increase of almost 1 million!

A similar pace was maintained till FY15, when the number of accounts rose by 1.5 million. Since then, the number of new demat accounts opened year after year began to steadily increase.

FY18 and FY19 each saw around 4 million new demat accounts being opened. While that impressed many stock market experts, it was no match to the staggering 4.9 million new accounts opened during FY20. Impressive, isn’t it?


Reasons for the rise of retail investors in the stock markets

There are many reasons that have contributed to the increasing interest shown by the retail investor segment. Here’s a quick look at a few of them.

  • Millennial investors: One of the key drivers of this steady growth has been the entry of millennials in the stock market space. Unlike their predecessors, millennials are seemingly more open to taking risks. This made them naturally inclined toward the stock markets.
  • Easier access to the stock markets: With the introduction of Aadhaar verification and e-KYC norms, opening a trading and demat account has become easier and quicker. That’s not all. Since the entire process is completely paperless, it can be done online from the comfort of your home, your office, or even when you’re on the move.
  • Increase in awareness: The mystery surrounding stock markets has been steadily decreasing. Stockbroking companies have undertaken painstaking efforts to compile comprehensive investor education modules to educate individuals about the markets. By breaking down the various concepts of trading, investing, and the stock markets as a whole, these efforts have served to increase retail investor awareness.
  • Lockdowns enforced by the COVID-19 pandemic: This has been one of the most important reasons for the absolutely meteoric rise in retail participation. The enforcement of nationwide lockdowns gave retail individual investors more time on their hands. And India’s investors seem to have prudently used this time to get into stock trading. In addition to that, a fall in income due to pandemic-driven pay cuts also pushed many people to take the leap into the world of stock trading.  

Wrapping up

Now, the equity space is not the only segment that’s witnessing an increase in numbers. The derivatives segment, which includes futures and options, is also seeing an uptick. With stockbroking companies looking to tap into the Tier-2 and Tier-3 cities, this growth is likely to only continue in the near future.

A quick recap

  • The market share of retail investors in stock markets has now touched 45% as of FY2021.
  • Countries across the world are also witnessing a simultaneous rise in retail investor participation. 
  • Reasons for increased retail investor population include the increasing number of millennial investors in the country, easier access to stock markets, increased awareness and stock market education, and of course, the pandemic.

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To begin investing in the stock market, a retail investor only needs three accounts - a demat account, a trading account, and a bank account.
There is no limit to how much you can invest in the market. You can choose to invest as little as Rs. 100, or you can invest higher amounts as per your budget. In the case of IPOs alone, retail investors cannot apply for shares exceeding Rs. 2 lakh.
Retail investors are free to invest in all market segments. This includes equity, debt, currency, commodities, and derivatives.
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