Unique retail investor participation dips to 24-month low

In April, 67 lakh unique retail investors participated in the cash market on the NSE out of the total demat account base of 11.61 crore. This represents about 5.8% of the total demat accounts in the country. Unique retail investor participation is calculated on the basis of the PAN or Permanent Account Number. This is a more accurate indicator of investor participation as the total demat account base includes multiple account openings by investors.

“The subdued primary market, dismal performance of small- and mid-cap indices, and rising rate of interest in the economy in the last 24 months have contributed to the declining retail investor’s base,” said Jimeet Modi, founder, SAMCO Group. “The fixed income instruments, considered safer, have become more lucrative than before, causing lack of interest and sluggishness in retail activity.”

The previous low in unique retail investor participation was 69.22 lakh in April 2021. Between October 2021 and April 2022, more than a crore unique retail investors participated in the cash market segment.

The primary market has been subdued so far in 2023, with five companies raising ₹5,824 crore through initial public offerings. In 2022, 40 companies raised ₹59,302 crore.

Unique retail participation in futures trading has declined to over a 15-month low, with 1.14 lakh in index futures and 1.76 lakh in stock futures. The number of unique investors trading in index options was 27.73 lakh, a decline of 10% over the previous month.

Since October 2021, smaller stocks – popular among retail investors – have remained sluggish. The BSE mid-cap and small-cap indices have returned 4% in this period. This slowdown in the broader market has also resulted in the loss of investor interest and a decline in retail activity, said brokers.”Many retail investors are sitting on losses in their portfolios which distract them from taking new positions while attractive alternate products are available for them such as fixed deposits, liquid funds, insurance products which are giving better yield than stocks currently,” said Dhiraj Relli, MD, HDFC Securities.

According to Prakarsh Gagdani, CEO of 5paisa Capital, a lot of retail money moved to passive mutual funds as direct equity investment is not giving good returns.

Fixed deposit (FD) rates have consistently increased with banks offering over 7%-7.5%.

Brokerages are refraining from offering freebies to lure potential clients these days amid higher cost of capital in recent months. Earlier, many brokerages gave free shares and ETFs to their clients and new investors that helped them show a large active client base, said market participants.

“With the evaporation of the Helicopter Money and funding winter, the luring practices of brokerages came to a sudden halt, and therefore we are seeing a reversion to the true mean as far as activities are concerned,” said Jimeet Modi of Samco.