One of the key trends that emerged as India recovered after the crippling blows of the pandemic was the rise of Tier 3 and 4 markets. The spread of financial inclusion in the country has been led by a multitude of first-time investors. The sustained rise in the number of retail investors during the lockdowns is reflected in the rapid surge in demat accounts.
According to data from SEBI, an average of 26 lakh new demat accounts were opened every month in the year ending March 2022, as against a monthly average of four lakh in 2019-20. As of November 2021, the total number of investor accounts stood at 7.7 crore (NSDL and CDSL cumulatively) as of November 2021 with total investment of Rs 330 lakh crore. Of the nearly nine crore registered users on BSE, if you break up state-wise, Maharashtra accounts for the bulk of 21 percent of total investor accounts, followed by Gujarat at 11 percent. However, these have been the traditional equity bastions in India. Investment accounts are growing fast not only in local towns and villages but also in Manipur, Assam and Lakshadweep.
This shows that young people are looking to generate sustainable income through trading in stocks. They have seized the opportunity that mobile trading provides to invest in equities. The pandemic forced many people to diversify their investment portfolio beyond traditional financial instruments. There has been a considerable increase in equity participation, particularly among millennials and those outside the metro cities.
No geographical barriers
The emergence of new high-growth markets has also shifted the power centres in terms of most significant investor populations. BSE data reveals that there has been an increase in retail investors from across India. During the pre-pandemic days, metro cities were the power centres in terms of investor population. But post-pandemic, there has been an explosion in the adoption of mobile and digital investing platforms, as investors across India looked for alternative sources of income. This has freed financial institutions from the limitations of the geographies they could serve.
In the new landscape, a fiery market rally saw strong interest and activity from first-time retail investors — particularly millennials and the Gen Z — who had access to the internet and mobile devices. This, in addition to the government’s efforts to boost financial inclusion, led to a rapid rise in the number of investors joining the equity market.
The shifting power centres
A shift in the power centres is reflected in Upstox's own experience of onboarding new investors. Before the surge, most of the demat accounts were in the eight metro cities and a few big towns among Category Y cities. Since the pandemic, there is an incremental increase in customer additions from the top 50 cities.
It is encouraging to note that more than 80 percent of Upstox's customers are in the 18-36 age bracket and from areas untapped previously.
Knowledge, awareness and the appeal of equity investments
There is greater awareness and interest in equity investments. A shift to working from home has given investors enough time to understand the trend. People have begun to realise the importance of equity investments and are beginning to attach value to them.
The growing knowledge about investing and about different asset classes has accelerated retail participation. Many have increasingly opted for diversification and higher-profit-potential opportunities over traditional asset classes including FDs, gold and real estate. The idea is to get returns that are better than the inflation rate.
Asset classes other than equity typically lag behind the rate of inflation and offer diminishing returns. Therefore, millions of new, young investors have taken up stock trading.
The stock market rally in the past year has undoubtedly contributed to the massive increase in the number of retail investors. During the FY21-FY22 period so far, the Sensex zoomed and crossed the 60,000 mark for the first time ever, and the Nifty50 touched 18,600, completely ignoring the pandemic-induced economic blues. The previous best performance by the market was in FY9, when it had rallied 80 percent. But what set FY21 apart is the broad participation by retail investors, notwithstanding the $35 billion investments by foreign investors. We believe it is the new breed of first-time retail investors adding depth to the equity market, and we are glad that the pace of financial inclusion has also accelerated in the process.
New retail investors have provided conclusive proof that the deeper parts of the country are the bedrock of a fantastic future for its equity market.
--Puneet Maheshwari is Director at Upstox. The views expressed in this article are his own.