The silent majority driving India's stock market boom

Ashu Jain, 47, a mathematician by profession, made his stock market debut in 2018, after undergoing a couple of training sessions and reading multiple books on value investing. He was willing to purchase Page Industries in 2019, but since its value was in five digits, he was apprehensive about buying such an “expensive” stock.

“I calculated its intrinsic value which came around ₹38,000. This gave me the emotional strength to purchase the stock at ₹23,000-odd levels between December 2019 and February 2020. I booked profits at ₹28,000, but reinvested again.”

The Covid-led market crash didn’t bother him at all. Instead, he tried his hands at intra-day trading as well. “The risk-reward is unfavorable in short-term trading given the short-term capital gains tax. Long-term gains can still be timed as up to ₹1 lakh in profit is tax-free,” he says.

Karan Gupta, 30, technical manager at a Gurgaon-based IT firm, on the other hand, prefers to trade in futures and options (F&Os). “It is not that I have put all my eggs in the F&O basket. Mutual funds comprise 60% of my investment, 20% is allocated to delivery-based trades. Only 20% of my capital is allocated to F&Os.”

New-age retail investors have evolved. They are uninfluenced by telephonic “stock tips” coming from Surat or Indore, or larger-than-life personas regularly appearing on business channels. They are sophisticated. They listen to all, but most importantly, do their own research to take the final call.

The work-from-home phenomenon that triggered the retail upsurge in 2020 never ended. Offices have reopened and life is back to normal, but the retail revolution has continued. Part of the reason is low-interest rates.

Data from CDSL shows that from just about 38 lakh new demat account additions in FY20 to 1.22 crore in FY21, the total number of such accounts stood at 3.34 crore at the end of FY21. FY22 has already seen an addition of 1 crore demat accounts so far. The total number of demat accounts with CDSL stood at 4.41 crore as on August 2021.

The number of active clients has also seen a jump of 33% in just six months. It was at 2.51 crore as on August 2021, compared to 1.88 crore at the end of FY21.

“The retail growth is largely coming from the new generation of individuals who are digital natives and those from the small towns. It is to be seen how they behave in the medium term, but I see a sustainable shift happening in the market. This just cannot be a WFH phenomenon,” says Vijay Chandok, managing director and CEO of ICICI Securities.

The retail money is serious money. Industry experts say even if the crash happens, the pain will not be as harsh or prolonged as it has been in the past. There are investors waiting on the side-lines to enter the market. The Covid crash and the subsequent rally is afresh in everyone’s mind. They know the roaring bull is followed by a ravaging bear, and the cycle goes on.

“I know a lot of smart folks who exited last year and could never get in. It is unfair to call retail investors dumb. They have got it right this time,” says Nithin Kamath, CEO, Zerodha.

A lot has changed in the investment landscape. Look West. The infamous Reddit handle WallStreetBets in the U.S. crushed far too powerful hedge funds earlier this year and flared a debate on having more transparency on the institutional side. “They are as important as any hedge fund. They have paid mortgages and student loans through market gains. That is amazing. The retail sophistication is catching up with that of institutional,” Canadian-American investor Chamath Palihapitiya told CNBC in an interview.

While retail investors in India may not wield such influence on Dalal Street as yet, the shift is happening. S. Ravi, former chairman of the BSE, says even company promoters want more and more retail investors as they don’t want concentrated shareholding by FIIs or DIIs. There are proxy advisory firms such as InGovern and IiAS that alert minority shareholders against misgovernance. Then there are boutique firms such as Strategic Growth Advisors, Citigate and Dickinson that help listed firms with investor relations. Beyond profits and losses, the annual reports are being redesigned for better communication.

“Earlier foreign investors were the ones who moved the market. Power shifted to domestic institutions between 2010 and 2020 as mutual fund investments soared. As a collective force, retail investors may not have much say right now, but the next decade from 2021 to 2030 will belong to them,” says Jimeet Modi, Founder and Director of Samco Asset Management Pvt. Ltd.

Earlier only institutional investors had access to the likes of Reuters and Bloomberg. While these databases are still unaffordable for a retail guy, they have access to new-age databases now. The premium plan of Screener costs just ₹4,999 a year. Trendyline’s most popular GuruQ subscription is available for ₹2,190 per annum. StockEdge premium subscription comes in at Rs 2,999 per annum. StockEdge had 18 lakh users by the end of FY21. In just six months, the number of registered users jumped to 24.72 lakh.

“I do see users searching for glamourous stocks such as YES Bank and ITC on the database, but at least they are making an effort to study the stock before they buy it,” says Vivek Bajaj, co-founder, StockEdge.

The encouraging trend here is that investors are beware of penny stocks unlike in 2007-08 when they flocked to such stocks at the peak of the bull market. There are advanced tools that caution investors against risky trades. Kamath says Zerodha’s ‘penny stock nudge’ feature has done quite well. “The trading volume of penny stocks as a percentage of the overall equity volume has gone down by 60-70% since launch,” he adds.

ICICI Security has a similar feature called i-Alert, which tells investors if they are buying junk stock or a stock with high promoter pledge or consistent losses.

Another trend playing out is the entry of investors from small towns. They no longer have to visit physical branches for handing over physical documents to open a demat account. The e-KYC and a surge of fintech platforms have made account opening a lot easier.

Market regulator Sebi has levelled the field between retail and institutional investors. There are stringent disclosure norms. All corporate announcements are uploaded on stock exchanges. The regulator is quick at seeking explanations if rules are broken. Social media has become powerful too. It has aided in the dissemination of information.

Ashu Jain, for example, has created a group of like-minded retail investors. They discuss technicals and fundamentals of stocks. One member explains how bonus and stock splits work, while the other gives an account of noteworthy stocks among 52-week lows. They share technical charts, important news of the day, latest IPOs and NFOs, and even NCDs. They are careful about price-sensitive fake news too. They make sure no illicit WhatsApp forward is shared in the group.

Retail investors are a force to reckon with. They are smart and the industry players are taking note of it.