By Sandeep Bhardwaj
The bull run we witnessed from 2003-08 was the longest. We saw the benchmark index Nifty 50 rising from 1000 odd points to a peak of over 6,000. This was followed by the Lehman Brothers’ collapse that triggered the Global Financial crisis (GFC). We also saw a massive fall in the markets worldwide. The market observed a similar bull run from the post-COVID period to date, witnessing some volatility due to rate hikes, oil price spikes, and geopolitical tensions.
The difference this time around was the strength from within. The retail and domestic institutional investors (DIIs) have become a force to reckon with. It has almost negated the effects of the FII outflows, making our markets less dependent on FIIs flow for growth and stability.
Building on the same, let’s delve deep into the various factors that have provided strength and depth to the Indian equity markets.
The shifting role of retail investors
The clear hero or support system for the current bull run (apart from the strong macros, robust policies, and steady earnings) has been the retail participation. From just around 4 crore demat accounts in March 2020, we have come to about 14 crore demat accounts in 2024. That’s over 10 crore new investors joining the wealth creation journey in India.
Retail investors have become a force to reckon with, making this group responsible for average inflows of over $2 billion every month. From the latest data released- the SIP inflows of Rs 18,800 crore for January 2024 are up 36% YoY (up 7% MoM vs the Dec SIP inflows of Rs 17,600 crore). We are now close to 8 crore SIP accounts in the industry and the total AUM of the Indian MF industry is well over $630 billion.
This large base of investors is primarily due to investor awareness and the financial education of the masses. The advantages of investing in equities have shown clear results. As per data released by the RBI, Mutual funds attracted 6% of household savings in FY23. Small and retail investors are now understanding the power of equities and the kind of wealth they can create.
Roles played by various stakeholders
This trust by the investors has been made possible due to the robust rules and Ease of investing provided by the regulators – SEBI, RBI, and other stakeholders of the industry i.e., stockbrokers and distributors. The RBI and SEBI have played an instrumental role in the development of the market. The regulator has been vigilant on lapses of any kind, with the help of supervisory technology that has ensured strict law enforcement.
Role of technology
The equity culture in India would not have been possible without state-of-the-art technology. The transition from physical share certificates to demat, and from traditional physical IPO forms to online submissions, has significantly shortened the timeline for processing IPOs, reducing the period from filing to allotment, or refund from weeks to a few days. Adopting cutting-edge technology has helped percolate the equity culture among the masses in deeper geographies. The same is reflected well in the data, which shows a rise in the share of B-30 AAUM (27% of Individual Equity Monthly AAUM). Technology will continue to play a key role in our journey. However, with technology come newer risks that no one in the system has fully comprehended yet – like deep fakes, hacking, cloning, and breaches related to data security. There has been development related to policies around data privacy, storage, and confidentiality. However, full-fledged guidelines for Finfluencers remain a grey area, and regulating them has become a necessity given their sheer reach and influence on retail investors across geographies.
The Wealth Paradox
What lies ahead is addressing the wealth paradox. There are also various cases coming to light of new and gullible investors making heavy losses, most of which are incurred due to trading in derivatives. A SEBI study has revealed that 89% of retail investors in equity F&O make losses. Despite this, the F&O volumes are clocking all-time highs every month, primarily due to uninformed investors making an entry into the equities to make quick gains.
The need of the hour is to create awareness about the power of long-term investing as well as the perils of trading in derivatives. Efforts should be made to enlighten these investors on the advantages and ease of investing in equity-related Mutual Funds. At a fraction of the cost, professional fund managers give full-time attention and supervision to our portfolios.
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