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Retail Investment in India
Retail investment into the Indian equity markets through direct as well as indirect channels picked up meaningfully during the pandemic, and continued thereafter. This led to Indian equities staying afloat in 2022, the year when global equities suffered badly, thanks to the Russia–Ukraine war and the Fed tightening. Retail investor behaviour in India in and around the pandemic is examined through their activity (turnover) and net investments. These indicators are analysed using NSE’s proprietary data and juxtaposed with institutional activity. Retail risk-taking rises with market performance, shows high variability within the segment, and exhibits behavioural finance traits like exuberance and buyers’ remorse. Despite the recent correction in economic activity, retail investor participation remains well above pre-pandemic levels.
The author wishes to thank Prerna Singhvi, Ashiana Salian and Smriti Mehra. The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organisation, committee, or any other group or individual.
The coronavirus pandemic was declared as such by the World Health Organization on 11 March 2020. Global markets reacted negatively with major indexes hitting lower circuits and volatilities shooting up, as the disease that originated in China spread through an interconnected world leaving hardly any country unaffected. Reactions across countries differed to the once-in-a-century event initially, but eventually settled on lockdowns in various forms that led to most major global supply chains getting stalled, bringing the global economy to a halt. The pandemic and the response measure led to a record ~83% of all countries seeing recession in 2020. Over the next two years, the pandemic spread across countries, in waves that lasted one to three months. This resulted in fatalities in millions,1 until rising immunity levels due to widespread availability of vaccines and natural infections led to the virus reaching close to endemic levels. Besides early 2020, however, global markets did not see any major negative impact. In fact, the combined impact of monetary and fiscal responses to the pandemic translated into favourable returns for most risk assets, including equities.
One of the major ways in which the pandemic affected markets was the entry of retail investors. The rise of discount brokerages, digital advancements and rising smartphone penetration led to an increase in retail investments in the post-GFC (global financial crisis) period that rose further during the pandemic. Countries across the world not only saw increased trading across all market segments, but also saw the entry of new investors eager to participate in the volatility and rising markets. Osipovich (2020) finds that retail investors accounted for 19.5% of total shares traded in the United States (US) during the first six months of 2020, an increase of 4.5 percentage points over 2019 and nearly double the share seen a decade ago.
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