The retail participation in Indian stock markets is rising, says a SBI report, pointing out that 44.7 lakh retails investor accounts have been added during the two months of this fiscal. The number of individual investors in the market has increased by a whopping 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL, the report said. Also, the share of individual investors in total turnover on stock exchange has risen to 45% from 39% in Mar’20, as shown by NSE data.

With the onset of pandemic and subsequent lockdown, household financial savings showed a significant jump in Q1 FY21, and then a sharp moderation in Q2 FY21, says the SBI report. However, the data shows that currency in circulation again increased in Q3 and Q4 FY21 with incremental amount of 80,501 crore and 95,181 crore respectively compared to 17,225 crore in Q1. Furthermore, the markets have progressively improved with Sensex increased from 28,265 at the beginning of Apr’20 to above 52,000 now. This has led to increased investment in stocks and mutual funds in H2 FY21, it said.

The report highlights the key reasons why retail participation is increasing:

1) Declining saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market.

2) With key repo rate at 4%, the FD rates vary from 2.9% to 5.4 for different tenures (SBI FD rate). Even the current small savings rate are low, varying from 7.6% on Sukanya Samriddhi Yojana Account Scheme, 7.4% on Senior Citizen Savings Scheme, 7.1% on Public Provident Fund, and 6.8% on National Savings Certificate.

3) Another reason could be the significant increase in global liquidity. This is reflected in the FII inflows in FY21, with total amounting to $36.18 billion.

5) Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for their tilt towards the stock market trading.

6) There has been significant increase in the market capitalization in stock markets across the world in the last one year. However, in India it has been higher than other major countries. The market capitalization of BSE Sensex has increased by 1.8 times its value one year ago. Russia had 1.6 times increase, followed by Brazil, China, France and South Africa.

However, it is yet to be seen if this increasing retail participation is transitory or the beginning of long term behavioural change, the report said.

There is also an issue of financial stability which has arisen recently as the stock market has boomed with real economy suffering. Our financial stability index has improved modestly to 116.2 in Apr’21 from 115.4 in Mar’21, it added.

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