The silent majority driving India's stock market boom

The majority driving India,s stock market boom to new high

Digital natives with access to new-age databases are moving the market; 1 crore demat accounts already opened in FY22.

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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 […]

source The silent majority driving India’s stock market boom

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