All about retail ownership of the stock market

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Retail or individual ownership of stocks, and share of traded volume in the secondary market, is on an upswing. This is a positive as more people are participating in the growth of the Indian economy and the corporate sector. We will look at the broad trends in ownership pattern over a long period of time. The NSE does a quarterly study on the ownership pattern, which is the source of our data.

We will start with data from the quarter ended December 2019, as it was just prior to the severe market correction in the January to March 2020 quarter, and the tremendous rally thereafter. As per total market cap (i.e. going by total market capitalization as against floating stock), in the NSE listed universe of stocks, the retail ownership was 8.4% of total market cap. As a number, 8.4% may look on the lower side, but that is the nature of ownership of the stock market.

At the end of December 2019, Indian promoters held the bulk of it (32.2%) followed by foreign promoters (9.8%), i.e. 40% was promoter holding. Foreign institutional investors held 22.2% and the other major owners were the government (8.2%), mutual funds (7.8%), banks, FIs and insurance companies (5.4%) and non-promoter corporates (3.5%). To look at the movement of retail holding of the stock market, at the end of the disturbing correction of January to March 2020, it remained at 8.4% as on end of March 2020. That is, people stoically went through the correction. The extent of retail ownership has been increasing steadily and stood at 9.3% as on end of September 2021, the latest available data point. It is not just the ownership of stocks, there are other indicators of the extent of retail ownership. As of September 2021, the number of active investor demat accounts with CDSL (Central Depository Services Ltd) and NSDL (National Securities Depository Ltd) was 70 million.

For a perspective, in 2012, it was 20 million and in December 2020 it was 50 million. New investor demat account additions, at more than 14 million in 2020-21, compares with less than 5 million in 2019-20. In the first half of FY22, the number of new demat accounts at approximately 15 million, is already more than the entire FY21.

The sheer numbers are a pointer to the extent of retail participation. And that is not all, we will now look the participation of retail in NSE’s cash market turnover. What we just referred to as retail, in the turnover data, has been defined as individual investors i.e. domestic investors, NRIs, sole proprietorship firms and HUFs. This segment is the biggest contributor to traded volumes in the cash market. In 2015-16, the contribution of this sector to market traded turnover was 33%. In 2020-21, it increased to 45%. The other major contributors to traded volume are proprietary traders with 25%, FIIs with 11.5% and domestic institutions with 7.5%. In 2021-22, the share of retail trades was slightly muted at 43.2%, but still much higher than 27% of prop trades and 11% of FIIs.

If we look at a longer history, the ownership of stocks by retail was higher. In 2002, retail ownership was approximately 18% by total market capitalization. However, the decline after that, touching a low of 8.4% mentioned earlier, is not a decline per se. Promoter holding, including foreign promoters and the government, was approximately 35% in 2002, which has increased to approximately 50% now. FII ownership, from approximately 8% of total market cap in 2002, has increased to more than 20% now. Hence, on a relative basis, due to the increased holding by two major segments, there was a shrinkage in retail holding in percentage terms. The latest increase in individual ownership, from 8.4% to 9.3% mentioned earlier, is in tandem with that of promoters and foreign investors.

Net-net, the enhanced participation by individual investors in the stock market is an encouraging sign. Ownership and traded volume is not a closed circle of the big boys. The investor base, from a macro perspective of corporates, is that much diversified. From the investors’ perspective, long-term wealth creation through portfolio allocation to equity stocks is being availed of by as many investors.

The numbers discussed here are of the direct route, apart from the indirect routes of mutual funds, PMSs and AIFs. However, a word of note for the first generation investors in the stock market, people who have started participating in the rally 2020 onwards. Unless you are in the thick of it, this is not a casino to make a quick buck. This is an avenue for long-term wealth creation through ownership of quality promoters.

Joydeep Sen is a corporate trainer and author.

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