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Business News/ Market / Stock-market-news/  Rising market lifts retail investor participation
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Rising market lifts retail investor participation

Number of demat and mutual fund accounts have both risen steadily over the past year as sentiment improves

As on 30 June, NSDL had a total of nearly 1.39 crore demat accounts, an increase of 5.43% since July last year. NSDL did not provide data prior to July 2014. Photo: MintPremium
As on 30 June, NSDL had a total of nearly 1.39 crore demat accounts, an increase of 5.43% since July last year. NSDL did not provide data prior to July 2014. Photo: Mint

Mumbai: The positive sentiment surrounding the equity markets has helped bring in new retail investors into the market, both directly and through the mutual-fund route.

Data accessed from depositories and from the Association of Mutual Funds in India (Amfi) show that the number of demat accounts and the number of mutual fund accounts have both risen steadily over the past year.

Increased retail investor interest is a consequence of the rally in the secondary markets, which has pushed up the benchmark BSE Sensex by 17% since May last year when the Bharatiya Janata Party-led government was voted into power.

Depressed real estate markets and a fall in gold prices have also played a part in pushing investors away from physical savings towards financial savings.

Data from the two depositories—National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) —show there has been a consistent monthly rise in the range of 0.5%-1% in the number of demat accounts, which an investor needs to trade in shares.

As on 30 June, NSDL had a total of nearly 1.39 crore demat accounts, an increase of 5.43% since July last year. NSDL did not provide data prior to July 2014.

CDSL has seen a nearly 10% rise in the number of demat accounts since July 2014. As on 30 June, it had 98.38 lakh demat accounts, much higher than 89.76 lakh demat accounts in July last year.

The data is backed by anecdotal evidence from brokerage firms. Over the last few months, the pace of new client acquisition and the frequency of trading by old and new investors has increased, said brokerage officials. “In the last one year or so since the new government was put in place, our customer acquisition has gone up by 50%. There has even been a 30% rise in the level of activity by our clients. With the outlook looking strong, the average trade size of our retail clients has also increased and we expect the trend to continue," says Vinay Agrawal, chief executive officer, Angel Broking Ltd, which has one of the largest retail clientele in the country.

The benchmark 30-share Sensex has risen more than 17% since May 2014 when the Narendra Modi-led government took office. Since May this year, the benchmark index has been registering monthly gains on most occasions. In May last year, it clocked an 8% gain followed by a nearly 5% gain in June.

And so far in July, the Sensex is up 2.46% compared to the previous month. On Friday, the Sensex closed at a three-month high of 28,463.31 points.

The rise in the number of demat accounts is always looked upon as a barometer of investor interest in the market. As per a PTI report dated 6 January 2008, nearly one lakh demat accounts were opened in just three days before the 11,700 crore initial public offer (IPO) of Reliance Power Ltd was scheduled to open for subscription.

Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd says that while new investors have certainly entered the market, there is a difference between now and previous periods of market optimism.

“In terms of individual investors, I think high net-worth individuals are currently more active than retail investors. The average retail investor has become more mature after seeing the market movement in the last few years and now prefers to use the mutual fund route. But certainly, the pace of client acquisition is better compared to last year, and this only seems to be the beginning of a strong trend," says Oswal.

The fact that a number of new investors are coming in via the mutual-fund route is reflected in the increased number of mutual fund accounts, known as folios in market parlance.

The financial year ended 31 March 2015 saw an addition of 5.54% in folio numbers. This was the first time in five financial years that the number of folios increased when compared to the previous financial year.

In 2009-10, the number of folios had registered a marginal increase of 0.77%.

Between March 2015 and June 2015, folios have increased by nearly 2.5%.

In a 22 May report, brokerage house Morgan Stanley Research said it expects to see a “domestic liquidity supercycle" in India in the coming years. Morgan predicts $300 billion in domestic flows into the equity markets in the next 10 years.

“The scars from losses made in the early 1990s when equities were popular among the Indian retail fraternity have faded, in our view. A new generation is looking at equities. With regulations and demographics now more favourable for investors, investor education having increased, and a less risk-averse population, the qualitative environment favours equity investing," said the research report.

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Published: 20 Jul 2015, 01:04 AM IST
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