Retail investors stock up on financial, consumer staple, IT: SBI report

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Retail investors have allocated most to the financial sector stocks at the bourses, followed by consumer staples, energy and information technology (IT) over the past few months, said the latest report by the economic wing of State Bank of India (SBI). There is also a renewed interest in healthcare stocks, SBI believes, with Indian financial ecosystem being effectively acting as a conduit of large liquidity finding investment avenues.

“Lower rate in other saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market. Another reason could be the significant increase in global liquidity. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals’ tilt towards the stock market trading. This has led to increased investment in stocks and mutual funds in H2 FY21 and this higher retail participation in stock markets may become more of a self-fulfilling prophecy,” wrote Dr. Soumya Kanti Ghosh, group chief economic adviser at SBI in the Ecowrap report.

Retail participation in the stock market, the report said, increased during the pandemic, especially in the second half of fiscal 2021-22 (H2-FY22). The number of individual investors in the market, according to the SBI report, surged by a massive 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. Another 44.7-lakh retails investor accounts have been added during the two months of FY22. On the other hand, the share of individual investors in total turnover on stock exchange has risen to 45 per cent from 39 per cent in March 2020, NSE data show.

Client-wise participation in capital market at NSE suggests that the share of retail has risen to 45 per cent in May 2021 from 39 per cent in March 2020, while that of domestic institutional investors (DIIs) and foreign institutional investors (FIIs) has declined to 7 per cent (from 10 per cent in March 2020) and 10 per cent (from 15 per cent in March 2020), respectively during this period.

Besides putting in money in the secondary market, retail investors, according to G Chokkalingam, founder and chief investment officer at Equinomics Research, have been chasing the initial public offers (IPOs) of companies, which is one of the reasons why select IPOs have seen high subscription levels. “It has become quite difficult to predict their behaviour. This retail frenzy is unlikely to last long and may fizzle out in 6 – 8 months,” he said.

The increased retail participation coupled with positive global cues and abundant liquidity has fuelled a meteoric rise in the benchmark indexes. The S&P BSE Sensex and the Nifty 50 have rallied around 102 per cent since their March 2020 low. Gains in mid-, and small-cap stocks, considered favourites of retail investors, have outperformed on the BSE with a rise of 130 per cent and 180 per cent during this period.

Among sectors, investors have flocked to healthcare, IT, auto and bank stocks with their indexes surging 104 per cent to 160 per cent during this period, ACE Equity data show.

As financialisation in the economy increases going ahead, the SBI report expects the share of savings in shares and debentures to total household financial savings which stood at 3.4 per cent in FY20 to rise to 4.8 per cent – 5 per cent of total household financial saving going ahead.

“This is still much lower than 36.5 per cent in the US, indicating the significant upside to household participation in equity investment,” Ghosh said.

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