What does 2023 have in store for retail investors- opportunities and challenges for Indian investors

What does 2023 have in store for retail investors: opportunities and challenges for Indian investors

By Sidhavelayutham M

It’s been a wild ride for financial markets in 2023, especially for retail investing, non-professional individual investors, which soared high in 2020 and 2021. According to data from the NSE, the retail shareholding in Indian companies clocked a near 15-year high in June 2022 and post-rate hike, retail shareholding is still holding up around 9.7% in both the Nifty 50 and Nifty 500 Index. 

the Aam Aadmi (common people) – retail investors who are taking over equity markets, building wealth for themselves and the country, a bunch of stimulus checks from the government and regulators and trading platforms which enable individual investors to make instant trades and giving Indians newfound disposable income. The optimism comes as investors are latched onto the cooling of inflation that is keeping the Reserve Bank Of India its foot off the gas and the recent stream of corporate earnings that are largely falling short of NSE’s worst fears.

However, new developments such as the STT hike and non-availability of the “do not exercise” option from the next series can mean that trading in the F&O segment and churning profits is going to be a bit of a task for retail investors. But, on the brighter side, the proposed increase in STT will not only shore up the government’s revenues to a certain extent but also act as a reminder for retail traders to timely square off their position ahead of expiry and save extra expense.

However, it’s still not rocket science and to predict the right investment opportunities, one must simply closely follow the changes in patterns of different industries, demands, and emerging technologies. Updating and changing investment behaviour according to trends not only is crucial for a well-perming portfolio but also brings impressive returns.

Here are a few things that 2023 holds for retail investorsRethinking financial empowerment

In light of a “potential” upcoming inflation, professional investors have been widely bearish on stocks, however, the contrarian crowd of retail investors confidently appears to be well-funded while picking up equities. Also, even though retail sector companies are a bit sensitive to macroeconomic factors, investors are getting much bigger access to private markets. Hence, with the growing trend of opting for systematic investment plans retail investors are not only auguring well in countering the volatile stock market movements but are also inculcating equity investing creating ways of saving money and thinking about long-term wealth creation.

With a strong understanding of financial indicators such as debt-to-equity ratio, Price to earning ratio (P/E), Earnings per share (EPS), Return on capital employed (ROCE), and market capitalization, retail investors can analyze the financials and fundamentals of retail stocks.

Fractional Investment

CRE, a technical and complex asset class investment avenue, and Alternative Investment Funds (AIFs) both are convenient options for investing in retail stocks, however, both these options involve heavy ticket sizes making it out of reach for many retail investors. That’s where fraction investment steps in and offers investment opportunities without being too heavy on the pocket. It also offers greater flexibility as investors can choose the amount and the length of time investors wish to hold the investment. Unlike REITs, fractional ownership pools in funds from investors and invests them into a single asset, making it popular among retail investors in recent years. Even financial experts are quite bullish about fractional investment being a new tax-efficient way, as recent taxation changes on the gains from REITs and InVits can demand much more from investors in comparison to fractional investment. 

Broadening the alternative assets

It is often quoted that ‘investors should give more thought while allocating their savings and investments across assets, whereas traders should focus on risk management and tight losses monitoring to keep their accounts safe, as earnings can cause volatility in the markets as seen in broader market indices. Given the potential risks and uncertainties, it is important for not just retail but every investor to stay informed and maintain a diversified portfolio, with a focus on long-term investment goals.

Diversification across sectors and asset classes, can not only make portfolios withstand market challenges but also deliver a fair compounded annual growth rate (CAGR) growth of the total portfolio. Retail investors can invest in either active funds in the mutual fund space or curate direct equity baskets, depending on an individual’s investment goals and risk tolerance. Although, it can not be overstated that investors need to be clear about their investment objectives and consider factors such as fees, risk, and historical performance.  

With trends like e-Commerce, social media selling, omnichannel tools, increase in automated technology, trading in the retail sector is designed to thrive. Even after economic downturns like COVID-19 pandemic and inflation, Indians never stop shopping, which keeps the economy, traders and investors to capitalise fully on the opportunities.

(Sidhavelayutham M, Founder & CEO, Alice Blue. Views expressed are author’s own. Please consult your financial advisor before investing.)