In the last few months, Foreign Portfolio Investors (FPIs), who used to be primary investors in the market listed companies, have pulled out billions of dollars from markets. However, Sensex has doubled in the last five years thanks to investment from domestic retail and institutional investors. The domestic institutional investors (DIIs) and retail investors have put more money in the market than FPIs pulled and this is the reason behind the rising Sensex.
In a sense, the Indian stock market is becoming AtmaNirbhar before any other sector. The digital public infrastructure built by the Indian government in the last decade – Unique ID (Aadhar), JAM (Jan Dhan accounts coupled with mobile number linking and Aadhar card as proof of identity), United Payments Interface (UPI) – led to an exponential growth in the number of investors, especially after UPI’s arrival.
Today, almost every eligible person in India has a bank account and operates some kind of mobile wallet that is powered by the UPI. This made the job of the digital-only brokerage platforms like Zerodha, 5Paisa and Groww as well as traditional ones like ICICI Securities and Kotak Mahindra Securities, very easy. Nowadays onboarding of a customer on the stock market through a Demat account takes less than 10 minutes and this has led to a revolution in the Indian fintech space.
The doubling of the number of investors in just 3 years is proof of the revolution through which Indian financial markets are going. A few weeks ago, the Indian stock market took over the United Kingdom as the fifth largest valued exchange in the world.
The growth in the Indian stock market is primarily driven by retail investors, who are pumping billions of dollars through mutual funds and direct investment in securities. The Indian stock market is getting popular among millennials, especially since the trading of stock became online. The trading of stocks from mobile-to-mobile is becoming dematerialised because it makes trading easier with very few charges.
During the Coronavirus-induced lockdown, India witnessed an exponential rise in the number of dematerialised accounts (used for the trade of securities) with almost a million new additions every month.
The retail investors have become such a lucrative group that a few months ago, the Reserve Bank of India (RBI) announced that it would allow retail investors to directly invest in government bonds (Read: government debts).
The growing confidence of investors in the Indian Stock Market (which is very professionally regulated as compared to the American stock market) and digital technology have brought crores of retail investors into the market. And now, even the Government of India wants to tap into the savings of the common people to finance itself.
With the rise of retail investing in India, the companies, as well as the government would have access to cheap capital, and the money that was lying idle in assets such as gold and real estate will be poured into the active market.
The United States, which has a GDP of around 20 trillion dollars, has a stock market valuation of 42 trillion dollars- two times that of its GDP. Similarly, for China, the stock market valuation is around 17 trillion dollars taking Hong Kong into account, which is more than its GDP. The UK, France, and Canada also have market valuations either more than that of GDP or almost equal to that. The Indian stock market valuation is also equivalent to GDP but very soon, it will be double of GDP just like the United States.