Indians are increasing their exposure to equities, indicating a shift from traditional investment assets such as gold and bank deposits.
The number of new dematerialized accounts, or demat accounts, opened during financial year 2020 was the most in at least a decade at 4.9 million, a 22.5% increase from the 4 million demat accounts opened in the previous year, showed data from the Securities and Exchange Board of India. Total demat accounts at the end of fiscal 2020 stood at 40.8 million, up from 35.9 million on 31 March 2019.
A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in digital format.
Fiscal 2020 saw the steepest market fall in 11 years. Benchmark indices Sensex and Nifty lost 23.8% and 26.03%, respectively, in FY20, the worst since FY09. Steep corrections gave buying opportunity, according to analysts. “We have seen consistent additions in the number of new accounts month-on-month. In light of covid-19, different challenges and opportunities are emerging. On the opportunity front, huge money was waiting to enter the retail segment and the market gave them an opportunity to enter at substantially lower levels. Second, because of a correction and activities in fixed return securities market, a new set of investors are entering the market," said Vishal Gulechha, head, equity, ICICI Securities.
There has been an increasing level of investment in quality stocks, which is healthy for retail market, Gulechha said. “Customer preference is clearly to select well capitalized intermediaries with established credentials. Safety of shares and money has become very important criteria for investors now," he said.
Nithin Kamath, chief executive officer (CEO) and co-founder of zero-brokerage stock trading platform Zerodha, also said the number of retail investors has increased during the lockdown as people started working from home. “Low prices of stocks gave new investors an opportunity to enter markets, while people who are working from home also had time to explore trading in equities," said Kamath. Low deposit rates in banks also brought new investors looking for higher returns compared to other asset classes, he said.
There is a huge increase in interest of young investors in stock markets, said Prakarsh Gagdani, CEO, 5paisa.com. “Millennials find equity trading a profitable investment option and we have seen huge growth in participation in that segment. We saw large number of demat accounts opened during SBI Cards initial public offering (IPO)," he said. There was 80% growth in retail participation from February to March and 10% in April in the platform, said Gagdani.
Mutual funds also attracted retail investors with money routed through monthly systematic investment plan (SIP) contributions, which touched at an all-time high of ₹8,641 crore in March. SIP is an investment plan offered by mutual funds wherein one invests a fixed amount in a fund scheme periodically at fixed intervals. However, with the unravelling of job losses and salary cuts due to covid-19, a continued inflow of money by retail investors will be critical to sustain market buoyancy.
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