How India's Retail Investors Kept The Rally Going
Retail, foreign investors or domestic institutions - who's holding on?
The pandemic-sparked retail frenzy in India’s stock market has gotten even bigger this year.
Individual investors piled more money into equities than foreign and domestic institutions combined for the second straight year. And the gap widened.
Net investment by the retail segment in the cash market stood at Rs 86,000 crore as of October in 2021, the National Stock Exchange said in its monthly Market Pulse report. That’s a 68% jump over the entire 2020. In comparison, foreign portfolio investors withdrew Rs 30,600 crore and domestic institutions pumped in less than Rs 10,000 crore during the period.
In 2020 and the first 10 months of 2021, the retail category bought stocks worth Rs 1.37 lakh crore, according to data by NSE, India's largest bourse. Both FPIs and DII have net withdrawn money during the 22 months.
More recently, overseas investors have been pulling out money citing expensive valuations, driving a pullback in equity benchmarks from the October peak. Retail investors, however, remain unfazed.
Retail investors turned net buyers in 2020, after at least three years, hoping to gain as equities rebounded from a Covid-19-triggered selloff—the worst in more than a decade. Individuals directly buying shares accounted for nearly half of India’s stock market turnover in 2020 and 2021 so far, the highest in a decade, as benchmarks scaled one peak after another.
The retail segment owned 9.4% of the NSE-listed stocks as of September compared to 21% by FIIs and 13.4% DIIs—that includes mutual funds, banks, financial institutions and insurers, and other institutional non-promoters.
Stock concentration, the NSE report said, has reduced as investors, especially overseas buyers, expanded their portfolio seeking ‘alpha’—the excess return over a benchmark index.
FPIs increased their exposure to additional 306 companies so far in 2021 in search of alpha, it said. DIIs have expanded their portfolio by additional 58 companies and retail investors by 38, though they don’t have any means to analyse these stocks.
Retail investors have invested in 1,986 companies till October but that’s thinly spread. Of the more than 1.9 crore new investors who entered the market in 2021, over 80% have below Rs 50,000 invested on a net basis.
It could possibly mean that many of them opened demat accounts for direct investments into initial public offerings this year.
According to the NSE report, while the downtrend in concentration continued for more than a year, it picked up slightly as FPIs turned net sellers in the last three months.