Fewer active investors even as benchmark indices hit record highs

Market volatility and lacklustre 1-yr returns weigh on activity

The active investor count has seen a sustained decline since June, even as the benchmark indices have jumped more than 20 per cent to log fresh lifetime highs. The uncertain economic environment, lacklustre one-year returns, and diminishing retail euphoria have weighed on market participation, according to industry players.

In June, the active client count at the NSE -- the country’s largest stock exchange -- stood at 38 million. At the end of October, the figure declined by 1.3 million to 36.7 million, data provided by CLSA showed. 

Typically, in an upward-trending market, activity picks up. Last October, when the Sensex and the Nifty hit lifetime highs, the active client count had been doubling year-on-year. At the end of November 2021, the active client count was 29.9 million. 

This time, though activity is still higher than last year, YoY growth has slowed to 30 per cent. 

An active client is one who has initiated trade in the past 12 months.

“Last October and November peaked in terms of market activity. The entire market was doing well when the indices were near all-time highs. Now, only a few stocks have moved the market up. The outlook depends on how the markets do. If the market remains flat, activity will remain low,” said Nithin Kamath, Founder & CEO, Zerodha, the country’s largest brokerage.

While the markets are up sharply from this year’s lows, returns on a one-year basis are still poor. Also, last year, the markets were largely upward trending. By comparison, this calendar year has witnessed sharp ups and downs. According to broking industry officials, volatility discourages small investor participation.

“The broking industry is currently at a peculiar junction with a decline in the number of active trading clients while the Nifty 50 has hit a lifetime high. There are various reasons for this decline -- the biggest of which is the uncertain market environment,” said Arun Chaudhry, director and chief business officer, Mirae Asset Capital.

In June, the Nifty plunged to a 13-month low of 15,294 amid rising bond yields, triggered by the US Federal Reserve’s aggressive monetary stance. For many investors, who started their stock market journey in March 2020, a close 20 per cent fall in the benchmark indices from their 2021 highs, was a reality check.

“The markets were volatile during the initial seven months of this year. And retail investors don't trade much when there is heightened volatility,” said Prakash Gagdani, CEO, 5Paisa.

India’s demat account tally topped 100 million for the first time in August. Between March 2020 and August 2022, the broking industry added an unprecedented 41 million new demat accounts. To be sure, as one investor can open multiple demat accounts, the 100-million tally is not for unique investors. Industry players peg the unique investor tally to be around 50 million and the active account tally less than 37 million. Also, many investors take the mutual fund route, instead of direct investing. According to Amfi data, unique investors for the mutual fund industry stood at 36.2 million at the end of October 2022, up from 27.6 million a year ago.

During the market euphoria, many investors opened multiple demat accounts just to gather sops doled out by brokerages. Many of these accounts have now turned inactive.

“Typically, brokers offer freebies for opening accounts and that doesn’t mean that customers were really interested in the stock markets. Those customers might have traded initially but did not trade after that,” added Gagdani.