The shock absorbing abilities of Indian retail investors are the silver lining

New Delhi, June 19 (IANS) On June 7, Finance Minister Nirmala Sitharaman, speaking at a Ministry of Commerce event as part of “Azadi ka Amrit Mahotsav”, said that investors retail appeared to act as “shock absorbers” even as overseas portfolio investors kept their bets away from the Indian equity segment.

“Retail investors seem to be acting as shock absorbers…Even if REITs disappeared, our markets didn’t really have to show their ups and downs very distinctly as the small investors in the country came in big,” Sitharaman , who is also in charge of the Department of Corporate Affairs, had said.

His comments make sense as many retail investors have flocked to Indian markets in recent quarters, especially after the outbreak of the Covid-19 pandemic, which many financial experts believe was due to excess liquidity in the economy.

Over the past few months, the stock market has seen significant volatility, with foreign portfolio investors (REITs) going on a selling spree amid tightening monetary policy measures to deal with rising inflation and geopolitical tensions.

Rising interest rates are generally a drag on economic growth as they increase lending costs for industries and businesses.

Foreign investors have withdrawn more than $42 billion or Rs 3.26 lakh crore from Indian markets over the past eight months.

However, the silver lining came as domestic investors pooled over $32 billion or Rs 2.5 lakh crore during the same period.

In fact, these changes in the trend of investment models are not new.

Global Investment Bank Morgan Stanley (NYSE:) said in late April that the combined holdings of domestic mutual funds and direct households in equities had increased by more than 600 basis points since 2015, while those of REITs had fallen by around 150 basis points. .

We can gauge it by looking at the figures for the opening of dematerialized accounts (demat) in the country.

The opening of new demat accounts, monthly, has increased sevenfold on average since FY20.

In FY20, the average of new demat accounts was 4 lakh per month, while it increased to 12 lakh in FY21. In FY22, it increased to about 29 lakh, more than seven times from FY20.

Cumulative demat counts which stood at 3.6 crores in March 2019 were 7.7 crores at the end of last year, which essentially means that what has been achieved in two decades has been achieved in the last two and a half years.

It must be accepted that internet technology and mobile-based investment platforms are key enablers in democratizing stock market culture among the masses in India.

Not only retail investors but also deep-pocketed domestic institutional investors are high in the markets and they have the ability to buy shares in an amount matching that of foreign institutional investors.

Due to the strong participation of domestic investors, the decline in indices over the past few months in India has been relatively smaller compared to the United States and various other major global exchanges.



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