MARKETS, RETAIL INVESTORS TANGO TO NEW HIGHS

As more investors enter the markets, the palette of investing style becomes more colourful. Each investor brings in their own biases, impulsive actions and assumptions to the markets.

- SANDEEP RAINA

Sometimes this triggers unexpected outcomes especially when we look at those outcomes in the context of historical precedents.

In recent years, the markets have defied a historical precedent—that retail investors, generally, are late entrants to the markets when certain rallies are at their peaks. Over the past few years, the markets have defied this precedent as retail investors continue to make their presence felt in a pronounced manner. Actually, there has been a rise in retail investors to such an extent they have become a formidable force in the markets.

And, importantly, this resilience is expected to last much longer. This is because there are certain fundamental changes which support longer and sustained participation of retail investors. It is important to understand how household savings are increasingly being invested in financial assets. This can be understood by considering two key variables: savings and investment rate.

According to the Reserve Bank of India (RBI) data, as of 2021–22, savings rate as a percentage of gross domestic product (GDP) stood at 30.2%. Interestingly, the investment rate was 31.4%. This shows that increasingly people have realised the importance of investing. Besides this, according to the RBI, the share of household savings in financial assets stands at 56%. The share of household savings in physical assets stood at 44%. Financial assets include cash, stocks, bonds, mutual funds and bank deposits. This higher proportion of household savings in financial assets shows the increasing preference among retail investors to invest in the markets.

Let us understand the triggers which have enabled increasing investments of retail investors: