Retail Investors on The Rise

Indian retail investors have undergone significant transformation in recent years, marked by a structural shift. When combining both institutional and individual domestic investors, they now hold a larger share of stakes in comparison to foreign institutional investors. Bhavya Rathod elucidates how this surge in retail holdings has been fuelled by robust market performance 

A transformative shift is currently unfolding within the Indian economy, primarily driven by retail investors who are now assuming a dominant role in the equity markets. Individual ownership of stocks held by retail investors and the proportion of traded volume in the secondary market are experiencing a notable uptrend in India. This trend signifies a favourable development, as an increasing number of individuals are actively engaging in the expansion of the Indian economy and the corporate sector. They are not only amassing wealth for themselves but also contributing significantly to the nation’s economic prosperity. [EasyDNNnews:PaidContentStart]

This marks the inception of a promising surge in investment activity in India, a wave that is just commencing its ascent. Consider the transformative potential if the vast trillions of rupees currently tied up in physical assets within households could be harnessed to propel our nation’s economy. Imagine Indian citizens channelling their investments into the expansion of domestic companies – a synergy where economic growth and the prosperity of corporate India reciprocally fuel the accumulation of personal wealth for the average Indian. This vision could represent the ultimate realisation of Prime Minister Narendra Modi’s vision for a self-reliant India. It’s worth noting that we are already making substantial strides on this transformative journey. 

Market Update

While the benchmark indices remain range-bound, India’s broader markets are enjoying a distinct celebration of their own. The Nifty Mid-Cap index continues to mark daily milestones by reaching new highs and the Small-Cap index is also closing in on its previous record, achieved in early 2022. The number of engaged retail investors involved in trading on India’s largest stock exchange, the NSE, reached its highest level in 10 months, reaching 9.7 million in July. This surge can be attributed to a broad market upswing with mid-cap and small-cap stocks surpassing the benchmark Nifty in performance. 

The last time a similar number of investors were observed was back in September 2022, as per data from the NSE. In June, the figure stood at 8.9 million. This surge can be attributed to the superior performance of mid-cap and small-cap stocks in contrast to Large-Caps, as reflected in the Nifty Mid-Cap 100 and Nifty Small-Cap 100 indices. The increased participation of retail investors can be attributed to the overall rally in the broader markets, extending beyond the benchmark Nifty and Sensex. Furthermore, the number of demat accounts at both NSDL and CDSL witnessed a notable rise, increasing by 2.79 million in June, reaching a total of 123.3 million by July. 

According to NSE data, the count of active retail investors – those participating in cash segment trading at least once a month – has been on the rise over the past three months. Starting from approximately 3 million investors in January 2020, this figure surged to 12 million by January 2022, as per the exchange data. However, it experienced a significant decline from its peak, falling to 6.7 million in April of this year. This downturn was primarily attributed to the lukewarm performance of the mid-cap and small-cap stocks with the Nifty Mid-Cap maintaining a flat trajectory between January and April, while the Nifty Small-Cap recorded a 1.3 per cent decline over the same period.

Performance

Nonetheless, specific stocks with substantial retail investor ownership have proven to be underwhelming, failing to deliver significant returns to their shareholders. According to information sourced from the Ace Equity database, the majority of stocks predominantly held by retail investors have displayed lacklustre performance throughout the current year. As an illustration, during the June quarter, 11 BSE 500 companies recorded retail ownership exceeding 25 per cent. Notably, stocks such as Indiabulls Housing Finance, IEX and Polyplex Coporation, which have retail shareholding ranging from 30-40 per cent, have experienced corrections ranging from 11-30 per cent in the year 2023. 

Nevertheless, there are exceptions to this trend. Companies such as Happiest Minds, Tata Elxsi, and Praj Industries which boast retail ownership exceeding 25 per cent within the BSE 500 have managed to generate favourable returns in the current year. Conversely, consider the case of Aarti Drugs, where retail investors have reduced their holdings by approximately 1 per cent since the previous year. The stock has surged by 25 per cent in 2023. Remarkably, some of the leading performers within the BSE 500 index, including JBM Auto, Apar Industries and Zensar Technologies, have experienced a gradual decrease in their retail holdings. 

These outstanding performers have delivered impressive gains ranging from 150-200 per cent year-to-date. Retail investors have shown a strong inclination towards mid-cap and small-cap stocks, a segment that is often considered high-risk and typically kept at arm’s length by institutional investors. As of the end of June, the top 10 companies with the highest retail ownership include Ujaas Energy, Sintex Plastics, Visagar Polytex, Antarctica, Vikas Lifecare, Urja Global, MPS Infotecnics, Ortin Laboratories, Rolta India and Reliance Capital.

The top 10 companies that experienced the most significant surge in retail ownership during the quarter include Kshitij Polyline, Axita Cotton, Tantia Constructions, Tirupati Forge, Vikas Lifecare, Accuracy Shipping, Mirza International, Servotech Power Systems, Zim Laboratories and Sikko Industries. 

Conclusion

During the June quarter, retail investors enthusiastically participated in one of the most significant mergers in India’s corporate history involving HDFC Bank and Housing Development Finance Corporation (HDFC). This megamerger, which culminated in the formation of the world’s seventh most valuable bank, officially commenced on July 1, 2023. In the lead-up to this historic event, retail investors displayed notable interest by acquiring HDFC Bank and HDFC shares, amounting to ₹ 1,877 crore and ₹ 1,541 crore, respectively, in the second quarter of the year. 

Furthermore, retail investors demonstrated an active appetite for investments in two Adani Group companies – Adani Total Gas and Adani Transmission. Despite facing global economic challenges, retail investors displayed robust interest in Infosys, making it the stock with the highest purchasing activity during the quarter. They accumulated a net worth of ₹ 4,514 crore in Infosys’ shares. On the contrary, six companies experienced significant divestment by retail investors, namely Reliance Industries, Tata Motors, Bajaj Finance, ICICI Bank, Asian Paints, and Page Industries. Notably, retail investors offloaded ₹ 2,255 crore worth of Reliance Industries’ shares and ₹ 2,900 crore worth of Tata Motors’ shares in the same period. 

New-generation consumer technology firms, such as Zomato, which staged a notable resurgence in 2023, found themselves on the receiving end of retail investors’ dispositions during the last quarter. These investors collectively sold shares worth ₹ 900 crore in Zomato. Meanwhile, as of June 2023, the combined stock holdings of retail investors in companies listed on the National Stock Exchange surged to an all-time high of ₹ 22.1 trillion. This analysis encompassed over 1,900 companies that had retail shareholders as of June 30, 2023, and for which the most recent data is accessible. 

The valuation of retail holdings in these enterprises has witnessed a robust upswing of nearly 15 per cent since March 31, while experiencing a substantial surge of 23 per cent compared to the same period last year. However, when assessed as a fraction of the overall stock market capitalisation, the collective retail ownership has remained relatively stable, hovering around 7.53 per cent since March 2023, with a modest uptick of just 8 basis points (bps) over the past year. In terms of ownership measured by the number of shares held, this proportion showed a sequential reduction of 18 bps and a year-on-year decline of 57 bps, settling at 11.2 per cent. 

Indian retail investors have undergone significant transformation in recent years, marked by a structural shift. When combining both institutional and individual domestic investors, they now hold a larger share of stakes in comparison to foreign institutional investors. The surge in retail holdings has been fuelled by robust market performance. During the June quarter, the benchmark Sensex index delivered its most substantial quarterly gain of 9.7 per cent since September 2021. Furthermore, the relentless ascent of the small-cap segment, with its index gaining 21 per cent in the same quarter, resulted in a substantial 28.4 per cent increase in the value of retail ownership within this category on a sequential basis. 

This was followed by a 20 per cent rise in the mid-cap space and a 12 per cent increase in the large-cap space. The ownership of small-cap stocks by individual investors, in terms of value, saw a slight increase from 15.3 per cent in March 2023 to 15.7 per cent in June. Conversely, their ownership in large-cap stocks experienced a marginal dip from 6.7 per cent to 6.6 per cent during the same period. Looking at individual holdings, retail investors reduced their stakes in approximately 48 per cent of the stocks on a sequential basis, while this figure stood at 49.4 per cent when compared to the previous year. 

In terms of sectors, the value of retail ownership has notably surged in the power, media and entertainment segments over the past year. Power and media had experienced a downturn in recent quarters, but they have made a strong comeback in terms of performance, particularly the power sector. Additionally, retail investors have shown increasing interest in sectors such as hospitality and IT. The inflow of retail funds is anticipated to remain steadfast as the momentum of retail investment in India has only just begun and holds significant potential for further growth in the future. 
 

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