The share of individual investors in daily trading volume on the National Stock Exchange has soared to 45 per cent in 2020-21 from 39 per cent in 2019-20. The rise in retail trades became noticeable during the national lockdown last year when well-to-do households diverted their savings to the stock market to capitalise on a “once in a lifetime opportunity”, as a dip in the indices was called by many. As the lockdown froze all spending avenues, households diverted the money set aside for discretionary expenses into the stock market. The proliferation of mobile-based trading platforms such as Zerodha, Upstox and Groww also encouraged these investors. Central Depository Services Limited, one of the country’s largest depositories, added 20 million new investor accounts between February 2020 and June 30, 2021.
Yet, recent data suggest this cohort of investors is steadily becoming less active in the stock market, especially since the so-called second wave of the pandemic abated.
Market experts attribute the decline in trading activity of retail investors to the swift reopening of the economy. Since June, households have had more avenues to spend — such as vacations, shopping, revenge buying and so on. A sharp rise in vaccination across the country has allowed several offices to reopen for vaccinated staff. Some information technology companies have suggested a large part of their workforce would return to the offices in September.
The share of individual investors in average daily turnover in the cash market segment has declined 50 basis points since May, to 44.8 per cent in July, NSE data showed. The share of retail investors in the equity derivatives segment has seen a sharp decline of 210 basis points since May, to 23.4 per cent in July.
Market experts suggest the reduction in participation could be due to a decline in the availability of intraday leverage since June, as the next phase of the Securities and Exchange Board of India’s new margin rules kicked in. “People, rather than doing margin-based trading, would have shifted to more delivery-based trading in smallcaps,” says Amit Kumar Gupta, a portfolio advisor with Adroit Financial Services.
Gupta also attributes the decline in participation of individual investors to smaller businesses taking out some of the working capital they had invested in the market during the second Covid wave. This was also fuelled by the reopening of the economy since June.
According to the NSE, the individual investor category also includes sole proprietorship businesses.
Market experts say the retail investors’ share in the equity derivative segment will decline further after September 1 as a new phase of the new margin requirement rule takes away intraday leverage.
