Widening retail base enhances liquidity in mkt

New Delhi: There is a need for market regulators to ensure that retail investors are constantly informed and educated about the market dynamics as they are highly sentiment driven, according to an industry report.

Retail participation contributes to improving the liquidity of markets and the depth of the order book, the Assocham-CareEdge Ratings report said. A diversified investor base, comprising both retail and institutional investors, is important for market resilience in emerging markets during periods of volatile international flows. However, it could also add to greater market volatility.

“Retail investors are highly sentiment driven and tend to engage in more speculative trading rather than in long-run buy-and-hold investment strategies. This could amplify market downturns and upturns. Therefore, there is a need for market regulators to ensure that the participation is informed and educated," the report said.

Commenting on the report, Assocham Secretary General Deepak Sood said strengthening investor awareness is imperative for the smooth functioning of the market. "Easy and improved access to digital financial services has resulted in increased retail participation of investors in the capital market, which also calls for a robust framework for investor protection, education, and awareness, given the significant technological advancements," he added. As per the report, retail participation in the equity market witnessed a sharp jump in 2020-21 with greater involvement of tier-2 and tier-3 cities. The trend was driven by the search for avenues for high returns by the investors in a low-interest rate environment and availability of high liquidity domestically and globally, it noted.

“The trend also continued in FY 22 and is clearly reflected in the number of demat accounts, which scaled up significantly in that year. Indian investors opened a whopping 34.6 million demat accounts in FY22. This is nearly twice the number of accounts opened in the previous fiscal," it added. Also, a shift has been witnessed in terms of the distribution of turnover across different client categories. As per the report, the market share of individual investors rose to 45 per cent in 2020-21, making up for nearly half of the market turnover at NSE. This was accompanied by a decline in the shares of corporate, domestic and foreign institutional investors.