Though domestic institutional investors and foreign portfolio investors have played their role in market rally over the last three months, the retail investors have been at the forefront of the rally that saw benchmark indices rise by around 40 per cent after hitting a 39-month low of 25,981 on March 23, 2020. On Thursday, Sensex closed at a four month high of 36,737.
Last three months have not only seen a sharp rise in the number of new investor account additions but has also significant jump in the share of non-institutional investors (NIIs, also termed as retail) in cash segment volumes of equity trade. The share of non-institutional investors in cash segment rose to a decade high of 68 per cent in June 2020.
Retail investors made a dash in the markets after the markets fell sharply by around 38 per cent in February and March from their highs in January.
Over the last three months the Central Depository Services Limited (CDSL) added 19.6 lakh investor accounts at an average of 6.5 lakhs a month. By comparison, the average investor addition by CDSL in 2019-20 stood at 3 lakh a month. NSDL, on the other hand, added an aggregate of 1.74 lakh investor accounts in April and May 2020.
They have also raised their share in cash segment of trade. While the NIIs share in total volumes of cash segment stood at an average of 2.8 per cent in 2019-20, it rose to 4.1 per cent in the three-month period ended June 2020. The monthly daily average cash volumes rose from Rs 393 billion for FY’20 to Rs 584 billion between April and June 2020.
The rush of retail investors and their rising share in cash segment has surprised the institutional investors.
“This trend can be seen across markets worldwide. While FPI’s, flush with liquidity and DIIs have been investing, the rally is driven mostly by retail investors,” said a senior fund manager with a leading mutual fund. He added that the share of retail investors in the cash segment has risen significantly from levels of 45 to 55 per cent over last two years. While the share of retail investors jumped to 68 per cent in June, it has breached the 70 per cent mark in July. “This is the highest since August 2009,” he added.
Rising retail cash flow
The rise of retail share in cash segment has coincided with growing cash volumes.
CJ George, MD, Geojit Securities said that while the stock market has been rising because of fresh liquidity and increase in savings, he pointed various reasons for retail surge. “While many investors came hoping that this event related stress is a short term risk, lack of demand in real estate during the pandemic has also contributed to retail cash flows into financial markets. One interesting pattern that is visible is the increase in retail punting in stocks throughout the world.”
Mutual Funds that emerged as the most favoured platform for retail investors over the last six years, have seen a dip in inflows. The average monthly new SIP registrations has declined from 9.8 lakh in FY’20 to 7.8 lakh in April and May.
Fund houses say that investors who like to invest by physically visiting the branch, have not been able to invest or renew their SIPs due to the lockdown.
It is however important to note that the net inflow into equity mutual funds continues to remain positive. In June, the net inflow into equity schemes, however, fell to a 52- month low of 240 crore.
As the liquidity has been rising worldwide, FPIs and DIIs continue to remain net positive investors. In May, June and July the FPIs invested a net of Rs 30.813 crore into the Indian equities and DIIs invested 16,000 crore. DIIs had invested a net of Rs 72,528 crore in February and March.
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