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Is this the end of retail investor optimism?

Actual retail investment also showed a decline: retail share in overall turnover in the National Stock Exchange capital markets markedly dropped from 40.7% in 2021-22 to 36.7% in 2022-23 till June (Photo: Mint)Premium
Actual retail investment also showed a decline: retail share in overall turnover in the National Stock Exchange capital markets markedly dropped from 40.7% in 2021-22 to 36.7% in 2022-23 till June (Photo: Mint)

With dwindling demat tally and weaker trading volumes, retail investors are showing signs of fatigue but experts see limited room for a further fall in retail participation in equities

Indian equities are navigating rough terrains. Investor sentiment is in a dull phase amid high inflationary pressures and slowdown fears. Not only have foreign flows taken a beating, individual investors are also now retreating to the sidelines, data suggests. Just 1.8 million demat accounts were opened in June, a 16-month low, and far less than the 2.9 million accounts per month clocked over the preceding year. Actual retail investment also showed a decline: retail share in overall turnover in the National Stock Exchange capital markets markedly dropped from 40.7% in 2021-22 to 36.7% in 2022-23 till June. In May, the share dipped by 440 basis points (bps), though it crawled back a little in June.

Both indicators of retail activity—demat accounts and share in turnover—have shown unprecedented growth during the pandemic, until the markets peaked in October 2021. However, industry experts do not see any imminent slowdown. “Near-term trends can be volatile and a dip in client additions should not be seen as early signs of slowing retail participation," said Prateek Pant, chief business officer, WhiteOak Capital AMC.

S. Ranganathan, head of research at LKP Securities, attributed the decline to an inflated base, referring to the listing of Life Insurance Corp. of India in May, which prompted many to open demat accounts in the run-up. “If we take those figures as the base, we are bound to conclude that new account openings are tapering, but that in our view is not the right way to look at retail participation in equities," he said.

Shifting focus

Where are individual investors putting their money? Latest shareholding data gives mixed signals. In the BSE 500 universe, 45% stocks saw individuals pare their stakes in the June quarter, nearly two-thirds of which saw a price erosion of up to 68% during the period.

While overall retail shareholding in BSE 500 stocks improved by 10 bps to 7.3%, small-cap stocks, which retail investors typically prefer, witnessed a slightly opposite churn as shareholding fell from 12.3% as of 31 March to 12.2% as of 30 June. Meanwhile, individual investors retained their love for blue-chip stocks for the third consecutive quarter, raising stakes by 20 bps in Sensex companies.

Sunil Nyati, managing director at Swastika Investmart, sees this as business as usual. “During the current turbulent times, mid- and small-cap companies witness the highest volatility; so individual investors take shelter in the large-caps," he said.

Recent correction

The last bull run attracted many new retail investors, but usually, they are the first to give in to volatility. No wonder, the retail pullout was also reflected in segment-wise performance of shares.

The small-cap segment on the BSE receded 12.1% during the June quarter, which was more than the decline seen in the mid-cap segment (10%) and the Sensex (9.5%). (Domestic equities have since recovered, and the Sensex ended in green in July for the first time in four months.)

As the protracted sell-off dissuades retail investors from staying in, it’s good that some of them are being cautious in the small-cap segment, experts said.

“The current times are arduous ones and there lies a possibility of a financial market storm," Nyati said. But this storm will have major repercussions on speculative and overvalued investments or assets, he added.

Steady SIPs

Meanwhile, bullishness continues to be visible in the growing number of systematic investment plan (SIP) accounts, which stood at 55.4 million in June, exceeding the previous high of 54.8 million hit in May. Even in a challenging macroeconomic environment and weak market sentiments, monthly contributions to SIPs stayed above 12,000 crore in June, broadly steady on a month-on-month basis and up 34% compared to the year-ago period.

True, the number of new SIPs being registered came down in May and June, as per the data released by the Association of Mutual Funds in India. But the overall positivity on this front may not abate, yet. “Last two months’ trend should not be considered as impacting long-term expected growth in SIP registrations," said Akhil Chaturvedi, chief business officer, Motilal Oswal AMC. Recent market volatility could have impacted sentiments, he said.

 

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