Retail participation in equities drops to a 34-month low in January
Retail investor participation in Indian equities dropped to a 34-month low in January, while the number of active clients on the National Stock Exchange (NSE) also declined for eight months in a row.
The daily cash market average volumes of non-institutional investors, prominently the high-net worth individuals and retail investors, stood at Rs 22,829 crore in the month of January. This amount is the lowest since March 2020 and is lower than 61% from the peak of Rs 58,409 crore seen in February 2021, as per the exchange data.
The share of retail investors in total has also declined to 44% from 66% since then. High volatility in domestic equities and a renewed interest in fixed income amid a rising interest rate environment are likely to be the reasons behind the decline in retail investor participation in the cash market.
Decrease in active accounts
The number of active accounts on the NSE in January was to the tune of 3.4 crore accounts. This number is down by 3% compared to the previous month. The decline in the number of active accounts has been continuing since June 2022. The number of active accounts has declined from 3.8 crore to 3.4 crore over a period of 8 months.
Reasons for the drop in retail participation
The broader equity market has remained volatile since the beginning of this year. Rising uncertainties due to domestic and global factors have also kept investors under caution. Many of the small-cap and mid-cap stocks which are favourites of traders have been witnessing a sharp correction, thus discouraging retail investors.
Additionally, with rising interest rates, investors also tend to shift towards fixed-income securities in search of higher returns, given the underperformance of Indian equity markets as compared to global peers this year so far. Interest rates have been on the rise since May 2022.
The poor performance of some of the recent initial public offerings (IPOs) has further dampened investor participation. The enthusiasm that new-age tech stocks created around their IPOs also seems to have faded away. A sharp fall in prices of these stocks from their issue price amid overvaluation worries continued to upset investors.
The corporate earnings for the third quarter of FY23 also remained resilient with muted profitability in the commodity space.
However, amid all these, there has been a 31% increase in the number of demat accounts as the number was recorded at 11 crore in January 2023 compared to 8.3 crore in the month of January 2022.
Currently, the trading hours for the cash and derivative segments on the two major exchanges in India are from 9:15 AM to 3:30 PM. Recently, NSE has taken up discussions to extend the trading hours by 1 hour 30 minutes, to 5 PM.
The NSE circular stated that interest rate derivative contracts for expiry in the current month will be available to trade till 5 PM on the expiry day, February 23, 2023. All the existing contracts expiring after February 23, 2023, and all the new contracts introduced thereafter will be available for trading till 5 PM on expiry.