BackExplained: What's driving increased retail participation in Indian stock market?
The Indian market is witnessing unprecedented retail investor participation, with a surge in demat accounts and mutual fund inflows. Young investors are increasingly diversifying portfolios beyond traditional assets, contributing to market resilience.
PremiumRetail investors' participation in the Indian financial market has been steadily increasing, reflecting growing interest and confidence in the equity market. This surge is evident through the significant rise in demat accounts and robust inflows into mutual funds.
Millennials, in particular, are actively investing in equities, mutual funds and ETFs. This robust participation has been a key factor behind the unprecedented surge in Indian equities in recent years. It has also prompted many firms to raise funds through the stock market route to capitalise on the growing demand from retail investors.
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The participation has not only broadened the investor base but has also provided a strong foundation for the market. Amidst challenges such as high FPI (foreign portfolio investor) outflows, the increasing participation of retail investors acts as a cushion, contributing to market resilience and stability.
The Indian household sector plays a crucial role in the Indian economy, contributing significantly to the total gross domestic savings. Traditionally, Indians have favored bank deposits for their savings due to their perceived safety and stability, showing less interest in the stock market because of its perceived volatility and complexity.
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However, recent trends indicate a shift, with young investors increasingly willing to take on some risk by investing in the stock market and diversifying their portfolios beyond traditional assets.
Despite the challenges posed by geopolitical tensions, the resilience of the Indian equity capital market has been remarkable, encouraging more investors to participate in the stock market.
Demat accounts touched a record high
Amid this backdrop, a record 32 million demat accounts were opened in FY24, with 10 million added in the last quarter (Q4 FY24). According to a recent report by domestic brokerage firm Motilal Oswal, the total number of demat accounts surged to a record high of 154 million by the end of April 2024.
The number of active clients also increased by 41.8 million. For the first time in March, the number of demat accounts crossed the 150 million mark.
Additionally, mutual fund inflows were positive for the 38th consecutive month in April. A key factor in the strong equity inflows is the contribution from systematic investment plans (SIPs), which reached an all-time high of ₹20,371 crore in April, up from ₹19,270 crore in March.
The number of SIP accounts also hit a new high of 8,70,11,401 in April.
Companies in the stock market space, including broking firms, depositories, AMC companies, wealth management companies, and exchanges, are all benefiting from the rise in trading volume.
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Meanwhile, this strong participation has prompted large corporations to explore opportunities in the Indian broking and AMC business. In mid-April, Jio Financial Services, the financial subsidiary of Reliance Industries, signed an agreement with BlackRock to establish a 50:50 joint venture.
This venture aims to engage in wealth management activities, including the establishment of a wealth management company and, subsequently, a brokerage firm in India.
Factors behind the explosive growth
Speaking about the unprecedented retail participation, Anand Vardarajan, Business Head, Banking, Institutional Clients, Alternate Products, and Product Strategy, at Tata Asset Management, said, "Investors are clearly seeing a shift towards digital platforms among the younger generation. This is likely due to the significant improvements in ease of investing in recent years, which have fueled growth in the space."
He highlighted that digital proliferation is perhaps the key driver for traction in this age group. The app economy allows for convenient on-the-go transactions, making investing accessible anytime, anywhere.
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According to him, these factors are particularly beneficial for the 25–35-year-old demographic, many of whom are just starting their careers and earning income. The increased awareness of the importance of starting investments early and staying invested for the long term is likely influencing their decisions. This financial literacy is undoubtedly helping Gen Z make smarter investment choices.
Vardarajan also pointed out that the shift from physical branches to online platforms (bricks and clicks) is another key factor. The need for traditional brick-and-mortar offices is diminishing, replaced by the convenience of clicks and swipes on apps.
"This ease of access to information and transactions through apps is empowering investors. The prevalence and proliferation of investment apps, coupled with the growing popularity of mutual funds as a beginner-friendly option, are leading to a surge in investment activity among Gen Z. They are actively seeking opportunities to grow their wealth," he further added.
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Puneet Maheshwari, Director at Upstox, remarked, "As digital natives with a higher risk appetite than the older generation, millennials have gradually realised that getting started in the stock market is not that difficult in this digital era."
He emphasised that millennials today have access to very user-friendly interfaces and mobile-friendly platforms that provide them with investing at their fingertips. This convenience, coupled with access to the right learning material and financial market guidance, empowers them to invest confidently.
“Even at Upstox, out of our 13 million customers, a large proportion are millennials. To sustain this, we need to continuously focus on cutting through the market noise and providing them with the right knowledge, resources, and tools to invest."
“Financial education and awareness are key to ensuring that they understand the market and thus generate long-term wealth. Once they invest right and see rewarding returns, they will continue to participate actively," she noted.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.
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