Retail play in equity continues to fall, hits 34-month low

Daily cash market average volumes of non-institutional investors, mainly retail and high net worth individuals, were at ₹22,829 crore in January 2023, the lowest since March 2020 and 61% below the peak of ₹58,409 crore in February 2021, according to exchange data. Between then and now, the share of retail investors in total has shrunk to 44% from 66%.

“In the last few months, retail investors have not made much money in the stock market due to high volatility and decline in mid- and small-cap stocks,” said B. Gopkumar, MD, Axis Securities. “The trend has emerged of late where retail investors have shifted some of their money to fixed deposits as interest rates have seen a sharp rise since May 2022.”

The number of active accounts on the NSE was at 3.4 crore in January, down 3% from the previous month, making it the eighth consecutive monthly decline. It has been falling since June 2022, when the number of active accounts on NSE was 3.8 crore.

Nifty Small-cap 100 index has declined 10% in the last one year, while the Nifty Mid-cap 100 index gained 5% during this period. The Nifty has surged 3.7% in one year.

The performance of the benchmark indices is masking the deeper losses in several mid- and small-cap stocks, especially the ones popular among momentum traders. Many of these stocks are down 20-40% on an average. Retail investors typically invest in small-cap, mid-cap and penny stocks for quick returns.

“There are many factors for the decline in retail participation like the poor performance of IPOs, significant corrections in mid- and small-cap stocks, shift from TINA (There Is No Alternative) to TARA (There Are Reasonable Alternatives) with increasing interest rates,” said Dhiraj Relli, MD, HDFC Securities.“Sebi circular on banning free ETF credit — which many brokers were giving just to show active customers by doing a small value ETF credit — has led to a fall in active clients.”

Brokers said the rate of demat account openings by investors has also slowed down in recent months.

“While most brokers have stopped giving free trade on account opening since April last year, the acquisition of new clients has slowed down for the entire industry from January 2022,” said Prakarsh Gagdani of 5paisa Capital. “Also, the market was so volatile globally in the last few months, investors, especially from the delivery side, did not make money as expected.”

Some brokers said the Securities Exchange Board of India’s new tighter framework on margin requirements also prompted individual traders to move to the derivative segment from the cash market.

In the past year, the average daily turnover in NSE’s futures and options segment jumped 139% to 215 lakh crore.