Kya ye market sach me sabka hai?

My conversation with my wife, Roopa, led me to do more research on the retail investor behaviour in India.

I reached out to Sneha, who worked at a global sell-side brokerage firm and she shared some data with me. One afternoon we sat down to discuss the trends.

‘Do you know the quantum of retail inflow into the stock market over the past 12 months, through both Mutual Funds and direct investment in stocks?’ Sneha asked me.

‘Well, I know that retail inflows have been quite strong over the past year,’ I replied. ‘And at least over the past six months, foreign investors have sold USD 22 Bn which has been completely offset by domestic flows. A safe guess would be to just double that amount. So, I would say retail inflows over the past 12 months would be between USD 40-50 Bn.’

‘It’s higher than that. The figure is close to USD 60 Bn.’

‘Really. That’s Rs 4.5 lakh crores, quite a huge number. Do we have the breakup of inflows into Domestic Mutual Funds versus Direct Equity?’

‘Yes. Domestic inflows into Mutual Funds since Mar’21 are USD 38 Bn while $22 Bn has been invested directly into stocks.’

‘In case of Mutual Funds, I guess the domestic participation has broadened over the last 12-mths with many new investors coming in.’

‘Correct. The total number of Mutual Fund accounts, also called as the folio count, is up by almost 30% yoy to 80 mn.’

‘More importantly, the number of Systematic Investment Plan (SIP) accounts, wherein an investor invests a fixed amount every month into Mutual Funds, is up by 42% yoy to almost 54 mn. The SIP amount has also increased to around Rs 12,000 Cr per month.’

‘It looks like over the past 5 years, the SIP amount has more than doubled from Rs 5,500 Cr to Rs 12,000 Cr which is a good sign of the increasing maturity of investors. SIP flows are generally sticky across market conditions.’

‘Retail investors have also participated directly via stock purchases in a big way. The number of demat accounts, which an investor needs to open to trade in stocks and ETFs, is up 63% YoY to 90 mn and has more than doubled over the past two years.’

Source: Angel One

‘I had expected that. Even my wife is asking to open a demat account in her name after some of her friends did that and started trading in the stock market.’

‘Ha ha. No wonder. Over the last 2 years, an estimated inflow of US$36bn has been seen directly into stocks from retail investors.’

‘And that’s not all. In India, only 6.4% of the population has a demat account currently indicating that low penetration.’

‘So, you mean to say the growth potential is huge?’

‘Exactly, if we compare India with other countries like China or the USA, India is only at 6.4% demat penetration compared to 14% in China and 32% in the USA.’

Source: Angel One

‘OK. This data has been extremely helpful in terms of understanding the trends so far,’ I told Sneha. ‘But let’s also discuss what we can expect going forward. SIP flows are generally sticky across market conditions. So that’s extremely encouraging since individual investors’ interest in investing directly in stocks is driven by Mr. Market’s mood and he is notoriously fickle…’