Despite market volatility due to multiple headwinds including rate hikes, faltering economic growth and geopolitical tensions, the domestic market witnessed a healthy rise in the number of investors in 2022.
Data from BSE shows that the number of registered investors jumped more than 32 percent year-on-year (YoY) in 2022.
States like Arunachal Pradesh, Bihar, Uttar Pradesh, Assam, Nagaland, Mizoram, Meghalaya, Tripura, Odisha, Madhya Pradesh, Jammu and Kashmir and Himachal Pradesh witnessed a YoY rise of over 40 percent in the number of BSE-registered investors in 2022.
The data indicate that the awareness regarding investing in the equity market is increasing in not only large but even small states.
"The year 2022 has been a significant one for India’s investment market, wherein we witnessed some remarkable milestones. A landmark occurrence was the total number of demat accounts in India crossing the 10-crore mark this year, clearly depicting the increasing awareness and interest in equity participation," said Puneet Maheshwari, Director of broking firm Upstox.
Since the Covid outbreak in 2020, India has been witnessing a boom in the number of retail investors. Surging stock markets, spare time due to working from home, and the quest for an additional source of income brought many new investors to the market.
Moreover, technological advancement and the availability of a plethora of investing platforms can be termed as one of the biggest factors which proliferated the rise in the number of investors.
"A major driver of this trend can be attributed to the new age investing platforms with a strong technology infrastructure that has given investing access to users across the nation. Mirroring this surge, at Upstox we too, crossed one crore customer base in May 2022," said Maheshwari.
Will the trend sustain?
However, the rise in the number of investors this year is as sharp as it was in the last few years.
As Maheshwari pointed out, "This year India has seen modest growth. From July to September, there were six major economies - Malaysia, Greece, the Philippines, Israel, Colombia and Argentina with growth higher than the 6.3 percent which India achieved in the April to September quarter of this fiscal."
"However, we witnessed some positivity after nearly two years of social, financial and economic uncertainty and we expect that more financial power in the hands of citizens will lead to surging equity participation and a stronger economy in the coming years," said Maheshwari.
Besides, as Mint reported earlier, direct investments by retail investors in equities have fallen in the current fiscal year from record levels in FY22.
Retail inflow into NSE’s cash or secondary market stood at a net ₹37,400 crore in the eight months to November, down by 64 percent from ₹1.04 trillion in April-November of FY22, according to NSE data quoted by Mint. Net value is the difference between buying and selling equities.
This indicates while the number of investors increased, direct investment by retail investors fell due to market volatility.
"We continue to see steady new additions of users, especially in the 18-30 age group. Although there has been a 30 percent drop in new user additions this year compared to 2021 due to the market being down and global headwinds, user growth has remained flattish. The surge that we saw in 2020-21 in new user growth was a one-time event that won’t be repeated soon," said Faisal Mohammed, AVP, Business, Zerodha.
As V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed out, normally the sharp growth in retail accounts happens during a bull market and after the rally peaks, the growth rate comes down.
"The explosive growth in retail accounts happened during the one-way rally which took the Nifty from 7,511 in March 2020 to 18,604 in October 2021. Newbie retail traders made a lot of money during this one-way rally. After that markets turned choppy and traders started losing money. So, the explosive growth in retail accounts is over. From now on the growth will be normal," said Vijayakumar.
Analysts are optimistic about India's prospects in 2023 due to its sound economic growth while inflation is also expected to come down and rate hikes will most likely stop by mid-2023.
Maheshwari believes India's economic growth will boost investments in equity markets in the coming future.
"According to reports, by 2027, India's economy will rank third in the world, and by the end of the decade, its stock market will rank third. Economic growth will be more robust, equity participation will rise, and citizens will hold more financial sway. This is a very positive indication of where the future of India is headed," said Maheshwari.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.