India adds 10M new retail equity investors during the pandemic; crypto adoption also booms

Retail investors now account for over 45% of India's total equity trading market share, thanks to tech and access to cheap data.
Retail investors now account for over 45% of India’s total equity trading market share, thanks to tech and access to cheap data.

PUNE (CoinChapter.com) — Enabled by technology and access to some of the world’s cheapest data, retail investors now account for over 45% of India’s total equity trading market share. The total number of investors stood over 50 million in Nov 2021, rising a stark 61% from Nov 2019.

Similar has been the story of the major indices. While Nifty 50, the index of India’s largest companies, is up 42% in the last 24 months, Sensex rose 44% in the same time frame.

retail, India adds 10M new retail equity investors during the pandemic; crypto adoption also booms
India’s rising number of stock market investors. Source: NSE, FT

“Retail investors have now become a force to reckon with since the pandemic started,” said Rajesh Sehgal, managing partner at Equanimity Investments, noting that the so-called retail boom helped fuel India’s stock market bull-run, with the Nifty 50 index’s largest companies’ valuation shooting upward by over 25% year-to-date, and Sensex by 23% in the same period.

“There have been at least two or three down moves in the market in that time, but when foreigners or big institutional investors have started selling, retail has been buying.”

Sehgal added.

Increasing Adoption of Cryptocurrencies among Retail

Remarkable amidst this increase of retail equity investors is the sharp rise in the adoption of digital assets like Bitcoin and Ether.

In India, crypto investments grew from about $923 million in April 2020 to nearly $6.6 billion in May 2021. That marks nearly a 612% rise in the number of cryptocurrency users in our country. In addition, the largest Indian crypto platform, CoinSwitch Kuber, also confirmed that it had boarded almost 6 million active users since its inception in June 2020.

retail, India adds 10M new retail equity investors during the pandemic; crypto adoption also booms
The average number of daily active crypto users in India. Source: Statista

Role of Mobile devices and Trading Apps

As per the Bombay Stock Exchange data in Nov 2021, more than 19% of total trades were made on mobile devices compared to a meager 3% five years ago. Increasing accessibility to mobile devices has opened doors for people from remote areas to participate in the trade.

IN OCTOBER, the NSE said that more than half of new traders came from outside India’s top 50 most populated cities.

Zerodha, India’s largest broker in terms of retail user-base, reported adding 6m+ new users in the last 20 months.

Within this six million, more than four million were new customers aged under 30. This is a notable change in the investment demographics, as equity investments were traditionally perceived as a closed club for participants usually over 35 years of age.

The Investment market is booming while the real economy is not

Pandemic has resulted in increased domestic savings for the salaried sector. However, the declining saving avenues amidst the low-interest rate regime make equities a preference. Moreover, with the key repo rate at 4%, the FD rates vary from 2.9% to 5.40 for different tenures, retail investors risk negative real returns in the fiat assets.

India interest rate against retail boom. Source: Tradingeconomics.com
India interest rate. Source: Tradingeconomics.com

Another reason behind the anomaly is the significant increase in global liquidity. As a result, India reported a total of $36.18 billion FII inflows in FY21, in contrast to $23 billion in the previous fiscal.

Demographic change or a temporary phenomenon

Despite the dreamy numbers today, it is yet to be affirmed if this increasing retail participation is transitory or the beginning of long-term behavioral change. Also, there happens to be an inherent risk from the fact that the investment market has flourished while the real economy has not.

As a result, a major correction could soon find itself unsubstantiated by fundamentals and give way to a wealth-washout not only limited to equities but also to new-age asset classes like cryptocurrencies.

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