Analysis: India’s retail investors remain undaunted, but what are they betting on?

Once passive players, non-professional investors like you and me (aka retail or individual investors) now wield significant power in the Indian stock market. But where have their investments been flowing of late? Are they betting big on blue-chip giants, or taking risks on smaller companies? Here’s what data shows.

First, the growing retail presence is clear from the fact that 4.5 million new demat accounts were created in July, against an average of 3.5 million a month over the past year (just 0.4 million were added per month in 2019-20, the last pre-covid year). Now, 762 companies or 43% of those listed on the NSE boast more than 50,000 retail shareholders, up from 441 in March 2020. A total of 54 firms now have over a million retail shareholders, up nearly five-fold in four years.

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A Mint analysis of data as of 30 June shows that two-thirds (68%) of this shareholding rests with the top 10% companies by market capitalisation. This is down from 72% a year ago. 

The next 10% firms contribute another 14.7%, up from 12.6%. The bottom 60% account for just around 5% of the holdings, roughly unchanged over a year. While a large part of this increase in value came from a significant small-cap rally, it was also due to rising allocations to smaller companies.

Over the past year, while the index of BSE’s large cap firms has gained 28%, the mid and small cap indices have returned 55% and 51%, respectively. 

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Recent moves

Overall, retail shareholders had a 7.7% stake by value in NSE-listed companies as of 30 June, marginally up from 7.6% both a quarter ago and a year ago. More than half the stocks (51.4%) have seen an increase in retail shareholding since March. The moves seem tied to stock performance. On an average, these stocks have gained around 17.5% over this period, against the 7.5% return of the Nifty 50.

The data here refers to individuals holding nominal share capital up to ₹2 lakh in a given stock. Domestic mutual funds—a way for individuals to invest indirectly—saw their shareholding increase from 16.3% to 16.5% sequentially.

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These investments by individual investors, direct and indirect, have kept the stock markets afloat in uncertain times, with overseas investors backing off. Foreign institutional investors’ shareholding fell to 19% in June from 19.8% in March. During the June quarter, they sold over ₹7,500 crore in Indian equities.

“During periods of significant sell-offs by foreign investors, domestic institutional investors have played a stabilising role in mitigating volatility and supporting market confidence,” said Alok Agarwal, head of quant and fund manager at Alchemy Capital Management. “The increasing participation of domestic retail investors through mutual funds has strengthened the market's internal support system, fostering a more stable investment environment.”

Will prudence prevail?

Even in the face of political and economic headwinds, retail investors have continued on their relentless buying spree. The recent election results, which briefly sent shockwaves through the markets, don’t seem to have deterred them and they've used dips to boost their equity holdings. In the first half of 2024, net equity inflows from individuals ( ₹91,876 crore) exceeded those from overseas investors ( ₹3,201 crore), data from NSE showed.

But will the weight of the new global challenges—a potential US economic slowdown, escalating tensions in West Asia, and a rapidly appreciating yen—finally force them to retreat? Globally, investors are generally shifting to lower-risk assets, but whether this happens in India will depend on market volatility in the coming weeks and months, said Aamar Deo Singh, senior vice president, research at Angel One.