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At the time when institutional investors reduced their participation in trading activities in FY21, retail investors turned aggressive and their market share rose sharply to 45% amid rising uncertainty over the Covid-19 pandemic. In simple words, it means that if the average daily trading volume on the exchange is Rs 70,000 crore then nearly half of that is traded by individual investors.
Data available with National Stock Exchange (NSE) showed that retail participation through direct investing has surged steadily over the last six years. The market share of individual investors increased sharply by 12 percentage points to 45% in FY21 from 33% in FY16, offsetting the decline in the share of FIIs and public and private corporates during the same period.
While the percentage share of domestic institutional investors in the overall turnover was steady during FY16-FY20, it declined in the current fiscal to 7% of the overall market. The percentage share of corporates also halved during the period under review to 5% from 10% earlier.
Why is retail participation on the rise?
There are multiple reasons for the rise of retail investors in the market. Niteen S Dharmawat, co-founder, Aurum Capital, said: “The most important is the relatively poor returns by other assets and lower interest rates on bank deposits. Many of the investors have come for the first time. This coupled with technological proliferation provided very easy access to the market to people seating at home during the pandemic.”
Besides, the significant rise in the share of individual investors in FY21 can be attributed to the increase in new investor registrations witnessed in 2020-2021.
G Chokkalingam, founder, Equinomics Research and Advisory said, “Firstly, individual investors were attracted by the cheap valuation of stocks post March 2020 crash. Later, two crore new retail investors entered the market when they saw a massive rally in midcaps and smallcaps. They are continuously buying stocks. Roughly, one lakh new investors are getting registered in equity markets every day from the start of 2021.”
Participation in derivatives and index futures
According to NSE, the six years has witnessed the share of individual investors increase in the equity derivatives segment, in line with the increase in their share in the cash segment. While their share in equity derivatives premium turnover has increased nearly two percentage points, their share in notional turnover has increased seven percentage points during this period.
On the other hand, the market share of proprietary traders has gradually declined in terms of overall index futures notional turnover by three percentage points from 31% in FY16 to 29% in FY21, followed by corporates whose share has declined by six percentage points from 14% to 8% over the same period. This overall fall in their shares has been largely compensated by increased participation by individual investors from 32% to 39% during the same period.
Top sectoral exposure
Sectors like trading, finance, IT, textile, pharmaceutical, construction and engineering are among the favourites of individual investors including high networth investors. On the other hand, they have minimum holdings in sectors like ports, e-commerce, courier and insurance, among others.