3 min read.Updated: 28 Sep 2021, 02:34 PM ISTVivek Kaul
What this basically means is that a bulk of the rally during this financial year has been thanks to the massive amount of money being brought in by domestic retail investors, both in direct and indirect ways
On Friday, the BSE Sensex, India’s most popular stock market index, crossed and closed above 60,000 points, thanks to the Indian markets turning Atmanirbhar, or self-reliant. Or to put it directly, it is money coming in from domestic retail investors which has driven stocks to newer highs through much of this financial year.
The data bears out this trend. According to the Securities and Exchange Board of India, at the end of July, the total number of demat accounts in the country stood at 65 million, up from 55 million at the end of March 2021. This means that around 10 million accounts were opened during the four-month period, or alternatively, 2.5 million demat accounts were opened on an average every month during this financial year. Anyone wanting to buy and sell stocks needs a demat account to start with.
The interesting thing is that the total number of new demat accounts opened during 2020-21 or the period between April 2020 and March 2021, had stood at 14 million. Hence, on an average, around 1.2 million accounts were opened every month during the last financial year. This number more than doubled during the first four months of this financial year.
In 2019-20, or the period between April 2019 and March 2020, on an average, 420,000 accounts were opened every month. This has gone up to 2.5 million per month this financial year.
This basically means that in the recent past, there has been a flood of retail money flowing directly into stocks. Of course, low returns on offer from other investment avenues -- everything from real estate to fixed deposits to gold -- has aided this phenomenon. Other aspects like work-from-home, the availability of cheap internet, mobile apps and the rise of social media influencers have added to it.
This phenomenon can also be seen when it comes to fresh money coming into equity mutual funds. The total amount for this year between April and August stood at ₹50,759 crore. Of this, a massive ₹22,583 crore came just in July. In comparison, retail investors had net sold equity mutual fund investments worth ₹25,966 crore in 2020-21. A bulk of this selling happened between July 2020 and February 2021. This also shows that retail money gets invested in stocks only after the prices have run up significantly. This time has been no different.
All this is in stark contrast to how things have played out in the past when foreign institutional investors have been a major part of most stock market rallies. In fact, in 2020-21, they drove the Indian stock market by net investing a total of ₹2.74 trillion ($37 billion). This is when investors withdrew money from equity mutual funds overall.
Interestingly, during the current financial year, foreign investors have net invested just ₹9,483 crore ($1.4 billion) against the ₹50,759 crore invested by investors in equity mutual funds. A bulk of this money would have been deployed in stocks. Besides, there is a lot of retail money coming into stocks through demat accounts, which means investors are buying stocks directly.
What this basically means is that a bulk of the rally during this financial year has been thanks to the massive amount of money being brought in by domestic retail investors, both in direct and indirect ways. In that sense, the stock market has turned atmanirbhar this year. This comes with the disclaimer that in September, even foreign investors have invested a lot of money in Indian stocks. This is possibly because some of the money moving out of Chinese stocks is being invested in India.
Vivek Kaul is the author of Bad Money.
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