The stock market can be a rollercoaster ride of ups and downs, with high-risk and high-reward investments being a popular choice for many. However, as more and more brokers are opening new demat accounts every month, some of their older customers are finding it tough to sit through countless months of negative or no returns. The latest data from NSE shows that the exchange’s active client list has dropped by 53 lakhs in the last 9 months. So what’s troubling retail investors? The retail crowd is not as excited about trading as they were when working from home was more common during the lockdown phase.
Decrease in Retail Inflows and Turnovers
In addition to this, there are three other indicators that suggest the retail crowd is less enthusiastic about trading than they were during the lockdown period when working from home was more prevalent.
Firstly, retail inflows in FY23 were the lowest in three years, totaling only Rs 49,200 crore. This compares unfavorably with the robust inflows of Rs 1.65 lakh crore in FY 2021-22 and Rs 68,400 crore in FY 2020-21, as per NSE data.
Secondly, the daily turnover of retail investors in the cash market on both BSE and NSE fell by 29% YoY in March 2023 to Rs 23,700 crore.
Finally, the pace of new demat account openings is decelerating, with an 8% MoM decline in the incremental number of new accounts added to 19 lakhs.
What is causing this distress among retail investors?
Insiders in the market suggest that the Nifty's sideways-to-downtrend movements over the past year and a half are gradually driving weak hands out of the market. During Covid-related lockdowns, the work-from-home culture made trading fashionable among youngsters who could easily place orders without their bosses looking over their shoulders. However, some inexperienced traders who hoped to become overnight crorepatis after the one-way rally following the Covid crash have now realized that trading and investing are not as easy as they may seem.
A typical novice trader enters a bull market with a small capital, buys stocks based on tips, trades frequently, and exits at a loss while blaming the market for their failure. Sonam Srivastava, Founder at Wright Research, suggests that the increasing appeal of fixed-income investments, which offer stable returns and lower risk, has also shifted focus away from stocks and towards bonds and fixed deposits. The rise of alternative asset classes such as cryptocurrencies and real estate has also provided new investment opportunities with high return potential and diversification benefits.
Although the direct participation of retail investors on Dalal Street has declined, money is flowing freely into mutual funds. The net inflow in equity mutual funds rose to a one-year level of Rs 20,190 crore in March on the back of record-high levels of SIP flow worth nearly Rs 14,300 crore. Dr. Vijay Mehta, President of the Association of National Exchanges Members of India (ANMI), believes that the drop in retail interest is part of a cyclical trend that should not be a cause for concern. "Indian investors have a cyclical pattern of investment across asset classes depending on market levels and overall global and domestic economic outlook," he said.
Source: Economic Times
