The thriving tribe of Indian retail investors

Before the Covid-19 pandemic, institutional investors dominated the global stock markets, pumping massive sums of money into the market. Retail investing, although less dominant, was on the rise.

The push needed to thrust retail investing into the forefront came in 2020 when individual investors globally had to stay home, overwhelmed with uncertainty and anxiety about finances. That’s when many people turned to explore equity markets. Indian retail investors were no different.

The rise of newly empowered retail investors

The shift in the Indian investor demographics was starkly noticeable in post-pandemic 2020. Retail investors started to flood the market. And their ability to compete with institutional investors came not from the amount of capital they invested but from the sheer size of the retail investor segment.

Data shows that retail equity ownership in 2020 rose by 9% in the top 1,500+ companies listed on the NSE. The number of retail investors increased by around 10.4 million in the latter half of the year.

It wasn’t a one-time wonder either because 2021 saw equally explosive retail investor participation, with over 4.5 million new accounts added in April-May 2021.

These numbers clearly show that this is indeed the era of the Indian retail investor. A combination of factors like extended periods of working from home, the need for alternate sources of income, and the easy availability of credible information and stock trading apps, are driving this influx.

The new tribe of retail investors

Once inclined towards safer options, like fixed deposits and gold, the horizons of the average Indian investor have certainly broadened significantly to include a variety of equity-based assets.

Let’s take a closer look at some key traits of these empowered new retail investors.

Prefer online investing

Retail investors have been using online platforms and mobile apps to invest in the markets for a while now. With the Covid-induced lockdown, online investing became all the more attractive. Investors relied on apps to access markets from the comfort of their homes.

As a result, there was a surge in internet-based trading by around 70% between FY20 and FY21. A study by NSE shows that the average daily gross traded value via the internet has increased noticeably across various segments, including equity derivatives.

Building a diversified portfolio with top value stocks

Retail investors in India are showing an inclination towards diversifying their portfolios with a healthy equity component. They understand that equity investments are crucial to building long-term wealth, and a balanced portfolio helps cushion the impact of market volatility.

Various studies reveal that retail investors in India are investing in good-quality stocks, as shown by the growth of retail ownership in NSE-listed companies from 6.56% in March 2019 to a record high of 7.18% in June 2021.

Moving beyond direct equity

Retail investors are also moving beyond the primary and secondary direct equity market and investing in other equity-based assets. Equity mutual funds are a top favorite among individual investors, whose share in these funds grew by 16% between February 2020 and February 2021.

Retail interest in the futures and derivatives market has also shot up, with individuals overtaking institutions in the index futures market.

Informed decision making

The pandemic has made retail investors cautiously optimistic about markets. More investors now understand the importance of investing in markets for long-term wealth creation.

It is heartening to note that the many new retail investors used their spare time during the lockdown to improve their market know-how. Reading up and seeking advice from credible sources helped investors make better choices, aligning their investments to their goals.

Summing up

While this is certainly not the first time Indian markets have seen an influx of retail investors, this current boom is unique as the investors flocking to the markets are not limited to metros alone.

The participation of individuals from
Tier 2 and Tier 3 cities is also notable this time around, making it the era of the retail investor without any geographical limitations.