… Needed strict financial discipline to help individuals and the system
Last week, India recorded a major milestone in financial inclusion. Individual dematerialised accounts (demat) of both the Central Depository Securities (CDSL) and National Securities Depository (NSDL) have crossed the 10-crore mark. Considering the level of financial literacy in India, this is in fact a greater achievement.
In August, CDSL had crossed the milestone of over 7 crore demat accounts having being opened, a more than three-fold jump in over two years. CDSL had crossed the 2 crore demat mark in January 2020.
Factors behind rush
While the continuing bullish rally has strengthened the confidence of new and young Indian investors, what really drove the steep rise in individual accounts was a flurry of large IPOs such as LIC, Paytm etc. Additionally, the declining fixed deposit rates also pushed some investors to enter equity markets for better returns.
Another main reason is TINA (there is no alternative) factor. Investors now firmly believe that equity will outperform the other asset classes such as real estate and gold etc.
Currently, individual investors’ demat accounts stand at 10.05 crore, of which CDSL alone has 7.165 crore accounts and NSDL handles 2.886 crore.
The growth of accounts in CDSL has been phenomenal as it added five crore accounts in almost two-and-half years, having crossed the 2-crore mark on January 27, 2020. What is more heartening is the widening spread of the investor base with many accounts being opened from tier 2 and 3 cities as well as remote villages.
In fact, thanks to the entry of retail investors and their confidence in Indian stocks, the $30-billion pull out by foreign portfolio investors between August 2021 and July 2022 had only a small impact. The new investors, both through direct investment and via mutual funds, helped Indian markets remain steady.
Pointers for investors
However, retail investors could do with a few lessons that will help them invest directly. First and foremost, investors must keep it in mind that equity investments will give better returns to those who hold for long-term, say at least 15 years.
Investors, especially, first timers should concentrate on quality large-caps insteady of betting on penny stocks.
Investors who are unable to identify quality large-cap stocks can consider buying exchange traded funds, which are available on the secondary platform of stock exchanges for easy buy and sell. Over the long-term, most ETFs — be they large-cap, small-cap or mid-cap — have given a CAGR of at least 15 per cent.
Investors should park only investible amount available with them and not borrow funds to invest in markets.
For investor benefit
As former SEBI chief Ajay Tyagi said, there is a need to sustain retail investors’ interest in the markets after their overwhelming participation in Indian securities. “The task before us is to sustain growing investors’ interest by maintaining market integrity, simplifying processes, ensuring robust risk management, introducing new products and increasing awareness.”
Experts believe that the next decade belongs to India and it is high time new investors to capitalise on the opportunity. If retail investors maintain strong financial discipline and regulators help sustain market integrity, it will not help only individuals in wealth creation but benefit the whole system, which is need of the hour.
Published on September 09, 2022