Indians are making a rapid shift in their saving patterns from traditional instruments such as gold, real estate and bank deposits to alternatives like stocks, showed data from the Securities and Exchange Board of India (Sebi).
The number of dematerialized accounts, or demat accounts, opened in 2018 was the most in at least a decade at 4 million, a 13% increase from the previous year, the data showed.
More households in India began to prefer the stock markets after demonetisation in November 2016 when the Narendra Modi government banned high-value currency notes.
According to Sebi data, the total number of demat accounts rose to 34.8 million in 2018 from 30.8 million in 2017. There were a total of 16.8 million demat accounts in India in 2009, an indicator of the sharp increase in retail investors in equity markets.
A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in a digital format.
According to Nikhil Kamath, co-founder and chief investment officer of brokerage firm Zerodha, “with the push towards financial inclusion, a new set of participants have bank accounts now.
We see a considerable influx in the middle-income groups which are now diversifying from gold and real estate into the financial markets. Along with easier access to stock markets, we see the number of accounts opened in India increasing each year exponentially."
Four million new demat accounts were opened in 2018, taking the total number of such accounts to 34.8 million.
Kamath, however, said India as a market is still at a very nascent stage with a very small part of the population having any kind of access to financial markets.
“In India, less than 10% of the population has any exposure to the stock markets as compared to developed economies where this number is closer to 90%," he added.
Prakarsh Gagdani, chief executive officer (CEO)of 5Paisa Capital Ltd, an online discount brokerage firm and part of the IIFL group, said retail investors flocked to equities after the massive returns in 2017.
“Retail always participates, when they see the market going up. Seeing previous years’ returns, retail investors flocked to the market in 2018.
Also, with the rise of discount brokers offering easier and faster digital account opening, the demat number additions are higher. For example, we clocked over 300% growth in client acquisitions last year," Gagdani said.
According to Gagdani, retail investors have also become more active in secondary markets and are accessing more knowledge platforms than ever before.
In 2017, the equity benchmark index Sensex jumped 27.91% followed by a muted 5.91% return in 2018 which did not curb enthusiasm of retail investors. The primary markets also cooled off last year with 24 initial public offerings (IPOs) hitting the markets which raised a total of ?30,959.07 crore in 2018. In 2017, 36 IPOs hit the markets garnering ?67,147.44 crore.
Mutual funds have also attracted retail investors, with money collected through systematic investment plans (SIPs) showing a growth trend.
An SIP is an investment plan offered by mutual funds wherein one could invest a fixed amount in a mutual fund scheme periodically at fixed intervals.
According to Association of Mutual Funds of India (Amfi), there are 80.3 million mutual fund folios or accounts as of December 2018, of which 99.5% is accounted for by individual investors. Of the total, 75.3 million comprised accounts of retail investors, 4.54 million high net-worth individual accounts while 438,203 accounts belonged to institutional investors.
“Retail investor accounts have shown a positive rate of growth since March 2014," said Amfi. In 2017, mutual fund folios were at 66.5 million.
According to Amfi data, individual investors held 12.91 trillion in mutual funds as of December 2018, a year-on-year increase of 13%. Investments of individual investors in equity schemes increased 15% over December 2017. According to Amfi data, 64% of the assets of individual investors are from the top 30 cities.
“We have to give credit to the mutual fund systematic investment by retail investors. Campaigns like ‘Mutual Fund Sahi Hai’ have a huge impact," said Gagdani.
Analysts believe that participation of retail investors is at an inflection point and it is expected to soon see a much larger influx of retail participants allocating their savings to the stock markets.
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