Indian retail investors, the major force behind the significant rally in Indian stock markets post-Covid, are now at a crossroads as heightening global trade tensions, a relentless drop in their favourite mid- and smallcap stocks, and rising recession fears are testing their resilience.
The equity market boom, which began in April 2020, has attracted many investors to shift their focus to stock investing, leaving behind traditional savings options such as bank deposits. Many have achieved stellar returns, further influencing others to try their luck by investing their savings in equities, resulting in strong demat account additions and huge inflows into mutual fund schemes.
However, markets cannot maintain an upward trend indefinitely, they must correct to align with valuations. Sometimes, these corrections can extend for six months or even a year before bouncing back. The ongoing correction in the Indian stock market has continued for the last five months, pushing frontline indices to post their worst performances on record.
This is the biggest correction in the Indian stock market since Covid with new investors witnessing their first major crash and a prolonged downturn, leading to significant portfolio losses.
In the last five years, individual investors have invested ₹4.4 lakh-crore in the cash market, with additional investments also coming in via SIPs.
Greater participation in equities, coupled with strong gains generated by Indian equities in recent years, has increased household wealth by 40 trillion rupees in the last five years, data from NSE show.
However, the sustained drop in Indian stock market is testing the patience and resilience of retail investors, with experts projecting that a further, deeper correction in the local equities could hurt sentiment and spending by India's retail investors.
Weak market sentiment is now reflecting in new demat account openings, with the pace of additions slowing in February. Only 22.6 lakh new accounts were added during the month, the slowest growth since May 2023 and the second consecutive month of decline. In January, Demat account additions stood at 28.3 lakh. As of February, the total number of Demat accounts registered with NSDL and CDSL reached 19 crore.
Apart from weak market sentiment, the decline in new Demat account openings was also driven by reduced activity in the derivatives market following stricter regulations introduced by the Securities and Exchange Board of India (SEBI) to curb excessive F&O activity.
(By arrangement with livemint.com)
