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Zerodha’s co-founder Nikhil Kamath
Zerodha’s co-founder Nikhil Kamath

Zerodha founder explains how new retail investors are picking stocks during Covid

  • The average age of new retail investors in stock markets has dropped to 30
  • New retail investors are sticking to quality large caps and ignoring penny stocks, according to Zerodha

NEW DELHI : To take advantage of the stock market crash in March followed by a gradual recovery later on, thousands of retail investors have embraced equities for the first time during the Covid-19 pandemic in India. While some Robinhood investors turned to equities due to falling interest rates, others found ample free time to explore new investment territories from the comfort of their home during the lockdown.

Most discount brokerages have reported a sharp surge in new the opening of new demat accounts. At Zerodha, India's largest online discount broker, the number of demat accounts opened from January to May surpassed the overall client growth figures of last year.

Nikhil Kamath, co-founder and chief investment officer of Zerodha, said the average age of these newbie investors has dropped to 30 and the average ticket size to about 80,000.

"Retail investors, after a long time, seem to have come into the markets after a crash, buying large-cap bluechip equity amidst the fall in between 8000-9000 Nifty and are seeing substantial returns. This is a big positive for the ecosystem overall and could lead to increased participation from retail in the days to come," Kamath told Livemint.

Mutual funds SIPs have reported dismal numbers in June, which might indicate that retail investors are moving towards direct investing versus buying managed funds. "This could be a factor of COVID, and the additional time retail investors have at hand," he said.

The list of most popular stocks amongst the new entrants is dominated by large-cap companies like Infosys, Reliance, SBI, and HDFC Bank.

"We see a flight to quality, and investors are moving away from small-cap and penny stocks, ignoring SMS tips etc., which generally are a recipe for disaster. This, I believe, is extremely positive for the market's overall; tipsters typically erode significant investor wealth and often serve an ulterior motive. To research and allocate capital to bluechip companies with a long term outlook is something we would suggest to all our investors," Kamath, who also runs True Beacon, an asset management company in Alternate Investment Fund (AIF) space, said.

Led by players like Zerodha and 5paise, discount broking has been gaining ground in India. India has one of the lowest participation of retail investors whose number is around 4 crore only while the opportunity is pegged at 10 crore.

According to the Securities and Exchange Board of India (Sebi), the number of new demat accounts opened in the fiscal year 2020 was the most in at least a decade at 4.9 million, a 22.5% jump from the 4 million accounts opened in the previous year.

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