Exits by retail investors at highest levels in years

Exits by retail investors at highest levels in years

Thanks to profit-booking and high fixed deposit rates, exits by retail investors have been at the highest levels in years. Retail investors were net sellers in the NSE’s secondary markets for the third consecutive month in May.

According to the NSE’s Market Pulse, the combined net outflow during the last three months stood at Rs 19,600 crore.

Net retail investments in FY21 and FY22 were Rs 2.3 trillion, falling to a mere Rs 49,200 crore in FY23, and reversed into an outflow of Rs 15,000 crore in FY24 (as on May 31). Of the Rs 2.8 trillion in retail investments seen during the last three fiscals, Rs 1.6 trillion was pumped in during FY22 alone.

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An interesting trend observed is that the number of retail investors trading in the cash market and the F&O segments remain above pre-pandemic levels. This is despite direct participation by retail investors showing a declining trend since July 2022.

“Traders who jumped the bandwagon during the lockdown, primarily owing to the ‘FOMO’ factor, are now getting a reality check. While the disciplined traders, who are in for the long haul, will stick and make money, those who came in with the objective of making a quick buck faced losses and are now wary of blindly investing,” said Tejas Khoday, founder-CEO of tech-oriented brokerage FYERS.

Direct retail participation skyrocketed during the two years following the Covid outbreak, after an 11-year hiatus. The liquidity-induced rally in the aftermath of the lockdown brought retail investors into equity markets.

An executive at a brokerage, who did not wish to be named, agreed that brokers are losing clients steadily.

“Brokerages are showing a growth in monthly client additions as new players are coming in, thus the industry remains above the pre-pandemic level. But the older ones — who came in during the pandemic — are leaving. They came in at a time when FD rates had slumped and there was a rally in the markets, but now with FDs offering lucrative rates, they are cashing in and considering alternatives,” he said.

Zerodha co-founder Nithin Kamath, too, had tweeted recently: “Active clients on the NSE, Google & social media trends are way below all-time highs. Unlikely that activity will pick up given the higher interest rate environment.”

Khoday pointed out that many of the new traders had jumped into options, thinking they would make easy money, but are now exiting after losing heavily.

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The number of retail investors in the cash segment rose from 3 million in January 2020 to nearly 12 million by 2022. The number declined to 6.7 million by April 2023 — still higher than the pre-pandemic level, notes the report.

At present, the same is at a four-month high of 8.4 million, as of May. In the F&O segment, the number of retail investors remained consistent at 3.2 million in May, marginally higher than monthly average of 2.8 million during FY23.