What’s fueling the shift in Indian investor behaviour? (2024)

When it comes to the stock market, India’s growth trajectory can be put in context with the fact that Indian companies added $1 trillion to the market in less than six months. Achieving a $5 trillion market capitalisation puts India in an elite group of nations, along with the United States and China.

The main driver behind the current bull run, apart from strong economic fundamentals, solid policies, and consistent earnings, has been retail participation. The number of Demat accounts has skyrocketed from about 4 crore in March 2020 to approximately 14 crore in 2024. This means over 10 crore new investors have joined the wealth creation journey in India.

Retail investors have not only expanded the investor base but also provided a strong foundation for the market. Amid challenges such as high foreign portfolio investor (FPI) outflows the growing participation of retail investors acts as a buffer, enhancing market resilience and stability.

Indian equity market’s new powerhouse: The retail investors
It wasn’t too long ago that the Indian stock market's dynamics were heavily influenced by the whims of FPIs. However, this scenario has dramatically changed. Retail investors now account for 52% of daily market transactions, attesting to their growing influence and active participation. This surge is not just a blip; it reflects a deeper, more sustained engagement with the financial markets by the Indian populace.

A recent report by the domestic brokerage firm Motilal Oswal revealed that by the end of April 2024, the total number of NSE active clients also increased by 41.8 million. In March, the number of demat accounts surpassed 150 million for the first time. The AUM of the Indian MF Industry has grown from ₹9.45 trillion as of April 30, 2014 to ₹57.26 trillion as of April 30, 2024 more than 6 fold increase in a span of 10 years.

Furthermore, April marked the 38th consecutive month of positive mutual fund inflows. A significant factor in this robust equity inflow is the contribution from systematic investment plans (SIPs), which reached an all-time high of ₹20,371 crore in April, up from ₹19,270 crore in March.

The new generation and their bold ambitions
Historically, Indians have preferred to save their money in bank deposits, valuing them for their perceived security and stability. They have generally shown less interest in the stock market, viewing it as volatile and complex. However, recent trends reveal a change in this behaviour, with younger investors increasingly willing to take on risk by investing in the stock market and diversifying their portfolios beyond traditional assets.

Specifically, millennials are actively putting their money into equities, mutual funds, and ETFs. This significant participation has been a major contributor to the rise in Indian equities in recent years. It has also led many companies to seek funding through the stock market to take advantage of the growing interest from retail investors.

Several factors have contributed to this shift in investor behaviour:

• Regulatory reforms: The Securities and Exchange Board of India (SEBI) has played a pivotal role by implementing regulations around dematerialisation, capping mutual fund fees, reducing IPO lot sizes, and ensuring up-to-date regulations. These measures have made investing more accessible and attractive to retail investors.
• FOMO and cultural shifts: Investing has become 'cool,' driven by a cultural shift where financial independence and early retirement goals have become mainstream aspirations. The fear of missing out (FOMO) on market gains has propelled many first-time investors into the market.
• Mindfulness regarding money: There is a growing mindfulness about money, where it is seen as a means to achieve life goals rather than an end in itself. This perspective instils greater discipline and accountability among investors.
• Rise of digital investment platforms: Digital investment platforms have been instrumental in this transformation. For instance, platforms like StockGro offer a one-stop solution for investor education, providing a simulated investment environment and community based learning through which users can interact with peers and SEBI Registered Investment Advisors (RIAs). These features help demystify the investment process, making it more approachable and less intimidating for new investors.
• Access to banking: According to a survey by the Times of India, 99% of Indian households now have access to banking services. This widespread access is a crucial enabler for increased participation in financial markets, as it provides the necessary infrastructure for investing. As Ajay Lakhotia, founder and CEO of StockGro, said, “Over 120 crore Indians now have access to the banking system. The next step as a nation is to improve access to formal credit and financial services like insurance and access to financial markets. The opportunity here is immense, and the millennials and GenZs today are well-positioned to be a part of this growth story.”

Challenges and the road ahead
Despite these impressive strides, the journey is far from complete. While the absolute numbers are encouraging, India's relative performance still lags behind other countries. Many Indians also remain wary of the financial markets, preferring traditional investment avenues like real estate and gold. Of the total household assets of 11.10 trillion dollars as of March 2023, a major portion i.e. 66%, are invested in real estate and gold, shows Jefferies report.

Undoubtedly, though, there is a visible change in Indian investor behaviour which marks a significant departure from past trends, showcasing a more engaged, informed, and proactive retail investor base. With continued regulatory support, cultural shifts, and the proliferation of educational platforms, the future of investing in India looks promising. However, sustained efforts are needed to ensure that this growth is inclusive and that more Indians are brought into the financial fold, paving the way for a truly democratised and vibrant financial ecosystem.

Sources:

1. https://bfsi.economictimes.indiatimes.com/news/financial-services/total-demat-accounts-at-148-mln-nse-active-clients-increase/108508454
2. https://www.allcommercejournal.com/article/134/4-1-7-335.pdf
3. https://bfsi.economictimes.indiatimes.com/news/financial-services/total-demat-accounts-at-148-mln-nse-active-clients-increase/108508454
4. https://www.amfiindia.com/indian-mutual#:~:text=The%20mutual%20fund,crore%20(145.4%20million)
5. https://economictimes.indiatimes.com/mf/analysis/mfs-record-net-inflows-for-38th-month-in-a-row-sips-at-new-high/articleshow/109993457.cms?from=mdr
6. https://cafemutual.com/news/industry/29659-indians-still-hold-65-of-their-assets-physically

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