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Are Indian stock markets becoming Aatmanirbhar?

Upstox
By Upstox News Desk

3 min read | Updated on May 08, 2024, 15:49 IST

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SUMMARY

With markets rising, it is heartening to see that conviction of domestic players is on the sustained rise as well—despite bumps on the road. Not only does this lower the impact of external shocks on Indian markets, but also helps increase overall wealth creation in the country. We take a look at changing trends of ownerships in the Indian equity markets and if we are on our way to becoming Aatmanirbhar.

graph-163509_1280.jpg

Domestic participation in Indian markets continues to rise.

As the markets continue to make highs, our analysis indicates two equally encouraging developments: 1) Rising retail participation, 2) Overall increase in participation of domestic investors in the markets.

Share of retail + DII investors on the rise in Indian equities Ownership.jpg
Source: NSE’s India Ownership Tracker report; *in the NSE-listed universe
Why is this crucial? Effectively, this shields the domestic market from external events and lowers reliance on FIIs. That said, FIIs are still major market movers, given their share of holdings and the sentimental impact of FII buying or selling. However, the influence of domestic players is on the rise.

Let’s look at each of these.

Resilient and growing retail participation SEBI data shows that in the last 10 years, demat accounts surged by 7x from just 2 crore in FY13 to 14.8 crore in Till February 24. In fact, during 2019-2023, over ~12 crore investors were registered. Despite COVID in FY20-21, we are encouraged to note that retail participation remained resilient and has only increased since.
Demat accounts have increased 7x from FY13 - FY24
DematAccounts.jpg
Source: SEBI; Ministry of Finance, News articles; *Note - FY24 data is as of Feb-24 only
Increasing overall domestic participation DII + Retail participation has only been increasing, even as the share of FII’s declines. Assets under management of equity mutual funds (a key part of overall DII) reached ~₹23 lakh crore on Feb-24 from just ₹4 lakh crore in Dec-15. Much of this surge is credited to the surge in SIP flows. Average monthly SIP inflows have spiked ~5x in the past eight years.
Average monthly SIP contribution surged ~5x in 8 Years
SIPSurge.jpg
Source : AMFI
What does this mean for the market and investors?

First of all - are we completely aatmanirbhar? The answer is no. But it is critical to note that even now <5% of the Indian population invests in the stock market, compared to ~13% in China, ~33% in the UK and ~60% in the US, implying there is still significant room for an increase in retail participation, which should help in the journey.

So, what does this mean This suggests increased confidence in domestic markets driven by multiple factors such as steady economic growth, stable political landscape, increased financial literacy, and spillover benefits from global uncertainties into India.

As the influence of the foreign players reduces, so will the impact of external shocks. Ability of the domestic players to keep the markets buoyant has increased, which could help markets recover quicker than peers.

Increasing retail participation in equity markets should help increase overall wealth creation in the country. this will not only improve the standard of living but also help boost discretionary consumption in India, contributing to India’s overall economic growth

Key risks we can envisage are Continued global conflicts could adversely impact demand-supply chains and dampen overall sentiments.

This enthusiastic retail participation can largely be attributed to the continuous bull market witnessed in the domestic markets. If market trends reverse, or for that matter, even move sideways, retail confidence could start to weaken.

Happy investing!
Disclaimer: This article is for informational purposes only and must not be taken as investment advice. Investors should consult with experts before making any investment decisions.
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About The Author

Upstox
Upstox News Desk is a team of journalists who passionately cover stock markets, economy, commodities, latest business trends, and personal finance.

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