Brash, unapologetic, unperturbed, adventurous and fearless - a new breed of young investors is flocking to the equity markets, thanks to the spread of digital broking. They are placing bold bets, taking misses in their stride and ploughing on, thanks to heady gains they’ve tasted in their early stint in the markets. For them, stocks and cryptos are means to material gains and they couldn’t be bothered about gaining a deep understanding of what makes a stock or a crypto tick. Welcome to the post-pandemic market!
The times they are a-changin’
There are big shifts underway globally. The world has been rocked by the pandemic. Central banks have flooded the world with currency. Debt yields nothing. So asset prices have skyrocketed and the new kid on the block, crypto, has made so many wealthy beyond imagination. It is a time of upheaval. The digital transformation is shaking the roots of traditional businesses and threatening their very existence. There’s a shift underway to “tomorrow”. And a part of that shift is the breaking down of dominance across the world, across markets, across media. Everyone has a voice. Everyone has an opportunity to participate. The walls are disappearing. And this has ominous portents for the equity markets too, with a possible shift in the balance of power.
Minorities are rising, and the small groups enjoying majority control are being challenged in more ways than one. One promising piece in this puzzle is the advent of the young investor. Their entry is seen shaking up things in ways many veterans will frown upon. But that’s change. The sooner we embrace it, the better.
A rise, but not meaningful yet
The new age investor may be stomping into the markets and creating a flutter, but it may take a while for this new class to make a meaningful difference to how the market behaves, unlike what some might have us believe. And that too if this class can hold its nerves, when the tide turns.
A study of the shareholding pattern of BSE-500 companies for the past 11 quarters reveals that the average stake of shareholders with less than Rs 1 lakh invested in a company has risen by 1.25 percent from 8.45 percent in December 2018 to 9.7 percent in June 2021. And even as the average stakes of promoters have seen a bit of a dip, the other institutional and higher net-worth individuals own about 36 percent of these companies. So, while small investors may have raised their stakes in the business, they may still have a long way to go to make a significant difference.
In numbers, though, the retail brigade is ramping up. For instance, the average number of shareholders added by a BSE-500 company is 100,000 over 10 quarters.
The trend in increased retail participation is also evident in the demat account additions, with about 35.6 lakh accounts being added since March 2020.
But even the equity holding data, based on demat accounts, shows that the share of non-institutional stakeholders has only improved by 2.4 percent compared to the increase in holdings of foreign portfolio investors and other institutional investors like Alternate Investment Funds (AIFs).
Interestingly, the retail turnover data of NSE does not show a marked shift in favour of non-institutions. A look at data in February 2020 compared to September 2021 does not reveal an increase in share of turnover, though total turnover is surely up 60 percent since then.
So, while there’s been a significant rise in retail participation in the markets, it isn’t enough to move the needle yet.
The future will decide
Can the new gen investors make a meaningful difference in the future? That’s a billion-dollar question. It is quite like asking: where is the market headed? Even as many veterans are concerned about valuations and anticipating a correction in the markets, not merely because of a likely taper, there are some interesting insights from history that can give a pause.
We looked at the Nifty from April 2003 and plotted it along with the trend from March 2020. What we found is that the index returned a better 108 percent return in this run versus 91 percent in 2003, over 19 months. But if you project a similar trend from current levels to how things panned out between 2004 and 2009, you could place the Nifty at near 60,000 in 5 years. And even if you consider the index level after the top-out and correction till 2009, you would end up at an index level of about 29,000, which is 60 percent higher than current levels. And if you hope you can catch the top in about 3-4 years from now, you could be up over 200 percent from current levels.
If the new kids on the block get such a good bull run to play, you can bet they’ll be making a big difference in a few years from now.
So, while the newbies may not have the firepower to swing the markets today, don’t write them off in the future.
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First Published: IST