Indian Stock Market: Retail investors, live long and prosper

Individual investors have become a force to reckon with in the Indian stock market. The combined shareholding of retail and high net-worth investors is half that of foreign portfolio investors, and slightly less than a third of all institutional holdings. Individual investors now own more common stock than insurance companies, a far cry from the time when LIC was the sole point of exposure for most Indians to equity. Over the previous decade, 100 million demat accounts have been opened. The mutual fund industry manages almost ₹40 trillion more in assets now than it did in 2013. And 60% of those assets are owned by individual investors.

India appears well on its way to joining the cult of equity. Retail investors hold 7.49% of companies listed on NSE. On NYSE, they hold close to 25%. Still, Indian households park ₹3 in bank deposits for every ₹1 they invest in mutual funds. And Indians continue to invest over half their savings in physical assets like houses and gold. Yet, the rise of equity in the individual savings portfolio is being aided by the formalisation of the economy and the superior hedge it provides against inflation over fixed income. Growing exposure to equities through pension funds for government employees and the wider population is also adding to the momentum.

A new breed of champion individual investors draws in greater retail participation, particularly in a bull market. As the Nifty scales new peaks on foreign appetite for Indian equity, profit-taking has trimmed relative domestic institutional holdings. But retail participation is holding on to its share, as is expected when the market tops out. A multi-year bull run should pull household savings into equities at an accelerating pace.