Equity participation: Miles to go before we sleep

Equity participation from retail investors in India saw an uptick post-1999 when trading through Demat accounts became mandatory for all. However, in a population of around 1.3 billion, the number of retail investors is approximately 18 million. Such a small proportion clearly indicates a significant potential for broader participation in the country’s equity markets.

The pandemic proved to be a silver lining of sorts in this context. Since the past few months, the markets witnessed a phenomenal rise in retail participation, with all broking houses across the country reporting a surge in monthly account openings. Recently, the CDSL shared that the number of active demat accounts registered with it had crossed the 2.5 crore mark, a number that stood at one crore just five years ago.

However, despite its increase over the years, retail participation in our equity markets still needs a boost. Towards this goal, we need a two-pronged approach: first, identify the reasons holding Indians back from participating in the markets, and then work towards resolving those issues. Here are some actionable ideas to encourage broader equity participation in India.

Strengthen the element of trust: One of the most significant impediments to increased equity participation in the retail segment is a lack of trust. This distrust is a factor of various scams that hit the stock market in the early 1990s. Despite several remedial measures, the perception that a stock market is a risky place has stayed. To strengthen trust among retail investors, the industry participants must come together to shake off preconceived notions about equity markets.

Focus on investor education: Aside from a lack of trust, lack of knowledge about the markets also holds investors back. Despite the plethora of resources available, most aspiring investors are discouraged from entering the markets because they are unsure how to decode its potential. Investor education can prove to be a game-changer in this regard. By focusing on creating more awareness among individuals about equity investing, we can empower retail participants to venture into the markets.

Break down stock market myths: While lack of awareness is one deterrent, incorrect knowledge is another factor crippling equity participation in India. The prevalence of many stock market-related myths limits equity entry among aspiring investors. Some common myths lead people to believe that stock market trading is exclusively for experts or that it is necessary to invest large sums of money to benefit from market movements.

The market participants can help break down these myths, so the average investor can take cognizance of how easy it is for beginners to invest in the markets.

Pursue the right target audience: An investor’s appetite for risk plays a crucial role in where they invest their money. Conservative investors or people approaching their retirement prefer traditional investment vehicles. However, efforts to create awareness about the inflation-beating returns are gradually expanding the target audience base.

The pandemic showed that millennials, with the right education, are more receptive to the idea of investing in the equity market. SEBI’s data shows that a significant portion of the new accounts opened during the pandemic was traced back to investors in the 24-39 age group. These investors are likely to stay in the markets for a long term once they start seeing returns on their investments. Hence, initiatives to encourage their entry into the markets are much needed.

Clearly, we have miles to go before equity becomes the most preferred investment choice. But along those miles lie significant rewards, both for the investor and the economy.