DOMESTIC INVESTORS are tightening their grip on listed companies at a time when foreign portfolio investors are reducing their holdings due to global uncertainty and rising interest rates in the United States. Significantly, the share of individuals, high net worth investors and domestic institutional investors (DIIs) as a whole reached an all-time high of 23.34% as of March 31, 2022, well above REITs (foreign portfolio investors) share of 20.15%.
Data compiled by primeinfobase.com shows the rise of the domestic individual investor and the huge counterbalancing role it has played for foreign investors. Seven years ago, in March 2015, when the share of REITs was 23.32%, the combined share of retail investors, HNIs and DIIs was 18.47%. What is remarkable, however, is the increase in retail trade among domestic investors, from 6.12% in March 2015 to 7.42% in March 2022.
The value of retail investors’ holdings also rose from Rs 5.26 lakh crore to Rs 19.16 lakh crore, according to Pranav Haldea, Managing Director of PRIME Database. The rise accelerated over the past two years as Covid-19 hit and continued despite high stock market volatility following the Russian invasion of Ukraine, rising inflation and US Federal Reserve monetary tightening.
In fact, over the past two years, retail investor participation in stock markets has increased dramatically. This is reflected in the fact that the number of demat accounts more than doubled to 8.97 crores in the two years ending March 31, 2022. In fact, CDSL custodian investor accounts nearly tripled to 6 .3 crores in March 2022, compared to 2.12 crores in March. 2020.
The rush and worry
As markets soared after the sharp fall following the Covid-19 outbreak, retail investors entered the market in large numbers over the past two years. Their holding of listed companies has now reached an all-time high. Experts, however, warn investors hoping for quick returns. In the past, a run in the markets to high levels has not ended well.
But leading market experts are not optimistic and warn retail investors looking for quick returns. Prashant Jain, ED and CIO at HDFC AMC said, “I think retail is a very important player in these markets. And I’ve seen a couple of times in the past that when retailer participation is very high, that’s not a good sign. Because on the stock market, the majority is rarely right over long periods of time.
Jain pointed out that nearly 30% of household financial savings are now invested in stocks. “I don’t think that’s a number that should reassure us. I would be slightly cautious in the short-term markets,” he said.
Over the past six months – between October 1, 2021 and March 31, 2022 – REITs have sold equity stakes worth Rs 1.65 lakh crore. High Net Worth Individuals (holding over Rs 2 lakh shareholding) sold shares in the last quarter of FY 2021-22 as evidenced by their reduced shareholding – it fell to 2.21% on March 31, 2022 , compared to 2.28% on December 31, 2021.
Domestic Institutional Investors (DIIs), however, invested a net amount of over Rs 2 lakh crore in Indian stocks in the six months ending March 31, 2022. During this period, the benchmarks, Sensex of the BSE and Nifty of the NSE, increased by 0.54 and 0.63% respectively.
The massive sell-off by REITs comes against the backdrop of global uncertainty as they embrace risk-free trading, i.e. shifting from risky assets like stocks to more bonds and gold (considered safe). “The global investment scenario has been plagued by risky trade since October 2021, as central bankers hinted at policy tightening as inflation shifted from a “transitional” nature to a headache at medium term. This helped bond trading globally as yields began to look attractive, prompting investors to allocate a higher share to fixed income as an asset class,” said a recent Axis Mutual Fund report.
Retail investors also poured money into mutual fund equity programs, with March seeing inflows of over Rs 28,000 crore. According to Haldea, the share of domestic mutual funds in NSE-listed companies increased for the third consecutive quarter and reached 7.75% as of March 31, 2022, from 7.46% as of December 31, 2021. This was after 5 consecutive quarters of decline from March 31, 2020 (7.96%) to June 30, 2021 (7.24%).