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Why people are trending towards the stock market?
SEBI Chairman Ajay Tyagi has stressed that the Indian capital market is witnessing a sharp influx of retail investors.
Recently, SEBI Chairman Ajay Tyagi has stressed that the Indian capital market is witnessing a sharp influx of retail investors. He added that an averagely of 20 lakh investors are entering in stock market monthly since FY 2021. It raised certain questions that why people are suddenly tilting towards the Indian Capital market? Why does the economic barometer, the stock market, show lifetime high numbers even when the GDP data showed tremendous pressure on the economy? The rationale behind such a spike in the number of retail investors is multilateral. Some of the major reasons are mentioned: -
1. Internet Penetration
In 2015, the internet penetration in India was just 27 per cent. However, due to subsequent events such as the launch of Reliance Jio, Digital India Campaign, Demonetization, GST and corona has significantly enhanced the active internet users in India. As a result, till the end of 2021, the internet penetration has jumped to 45 per cent. With wider access and affordability of the internet, people are more equipped and aware of various available opportunities available for compounding their money. As capital markets have the potential to generate abnormal profits, people are exploring investing in capital market trajectory.
Covid-19 posed consecutive lockdowns, many households realize that their genuine expenses are much lower than they were spending earlier. With closed restaurants, hotels, malls, bars, megastores, theatres, and amusement centres people were left with extra cash and extra time. Many professionals, businessmen, and students explored internet space to learn new knowledge and skills in the work-from-home module. Subsequently, to generate returns on this available cash, people started utilizing their time in new market opportunities. In this way, many people started to mobilize their extra cash in the capital market as the preferred investment destination.
3. Broder knowledge space
With the development of modern knowledge resources, people from tier two and tier three cities have acquired wider access to financial management, investment modelling, the latest market information and a better understanding of diverse investment opinions. Interestingly this influx of investors is coming from small towns and cities. According to SEBI Chairman Mr. Ajay Tyagi, the number of new investors entering capital markets had seen an unprecedented pace. Further, he quoted that the number of investors spiked from 3.6 crore in 2019 to 7.5 crore in 2021. The increasing trend of investors indicates the changing of parading of the Indian capital market.
4. User-friendly applications
Earlier, there were many hurdles between retail investors and the Indian capital market. Technological improvements have also afforded us easy-to-use investment apps as well as various market access. The number of depository participants rose to 852 which acts as an important between depository [CDSL and NSDL] and investors. They protect the investors' securities and keep them in the dematerialized form. Different trading apps provide a platform for the rise of young investors who are not rich but tech pros. Different Trading apps such as Zerodha, Upstox, 5paisa, Groww, Angel broking, MotilalOswal provide an effective competitive platform that provides dynamic facilities at nominal account opening and maintenance cost.
5. Financialization of saving
Generally, a large section of Indian society prefers to put their savings in time deposits of banks and post offices. However, due to low-interest rates, people are mobilizing their savings in the new domain to earn inflation-proof returns.
On the other hand, the turbulence created by covid has forced people to curtail their expenses and ensure require savings to meet any uncertainties. Subsequently, when covid was in control people used these surpluses saving in the capital market because it offers high returns and high liquidity. This process of making provisions of additional saving and channelizing this surplus in the stock market is term as the financialization of saving.
6. Attractive IPO market
Modern youth lack patience and they prefer short term gain in place of long term heft returns. IPO (Initial Public Offering) provides a mechanism for investors to avail significant returns on their investment in a very short time, merely 10 days. The last year turned out to be a dream year for new investors, as 63 IPOs were listed at the Indian exchanges. Interestingly, except few public issues, all the IPOs gave a handsome return to the investors. IPOs such as MTAR, Paras Defence, Nureca, Laxmi Organics, Tatva, Latent View, Clean Science & Technology proved to be a multi beggar and delivered up to 300 per cent return to the investors. It attracted those people who were looking for high returns with little risk.
In a developing country like India which enjoys unique demographic dividends, a ready-made market, improving ease of doing business ranking, large scale reforms, the prospect seems attractive. With the dream of USD 5 trillion, India is accelerating its economic activities. The recent reforms in infrastructure, banking, manufacturing sector, telecom, etc. indicates that the government is streamlining the growth map of India. It provides an attractive stock market destination to invest in and generate attractive returns. However, certain caution needs to be undertaken while investing in such volatile markets.
Author- 1. Saumya Tiwari
2. Vipin Vihari Ram Tripathi