Reasons why the COVID lockdown has seen a surge in retail investing

The Indian stock market has been hit by a wave of new investors in recent months as the lockdown has forced everybody to stay home. There has been a boom in retail investing in particular, as well as a general rise in trading activity. While this isn’t the first time the stock market has seen a rise in fresh investors, there has been a new kind of investor who is joining the market. According to money control, the investors joining since lockdown have particularly been from Tier 2 or Tier 3 cities. These are cities like Jaipur, Nashik, Patna, Tiruvallur, Kannur, Nainital, and more.

One brokerage reported that about 80% of their latest customer base — one that has surged in lockdown — is from these Tier 2 and 3 cities. In general, the share of investors in the market is showing an increase. In fact, the global contribution in the cash segment of equity markets by retail investors has increased. India is one of the countries that strongly reflect this trend. The share of retail participation has inched to over 50% to 52% within the cash segment.

Why has retail investing increased during lockdown?

Since the lockdown, it’s fair to say that investors have increased their stock market moves in India. According to the CEO of Sharekhan, Jaideep Arora, retail investors are using the opportunity provided by lockdown to put their money into corrections. People might be attracted to equities since they offer a higher rate of return than weaker asset classes such as fixed income and real estate. The underlying reasons are as simple as wanting instant redemptions on one’s investments through fast-paced investments in equity stocks. Earning a quick buck through the stock market is always a popular reason to invest in equity shares.
Additionally, the lockdown also has narrowed one’s options due to the complete shift in the kinds of jobs necessary now. Brokerages have seen an influx of fresh customers under 35 who have the amenities and the time to be bullish in their investment portfolio. The trend in India mirrors that seen in the US. However, unlike in global markets, investors in India do not seem to be pulled towards stocks like moths to a flame. Since lockdown has accelerated staying home and work hours have shifted, investors are carefully understanding the nuances of share trading before putting their money into stock market investing.
Due to possibly having more time on their hands, individual investors looking to try their hand at stock market trading can now take the time out to carefully read, understand, and evaluate trends in the market. There was also a massive slide in the latter half of March this year which offered attractive evaluations and created an investment frenzy. It’s also crucial to recognize that many brokerages offer extremely convenient end to end investment options that can be completely digitized for the average consumer in terms of accessibility.

The trends reflect that India’s benchmark indices fell by around 40% from their initial highs but did not deter retail investors. Flows and transactions into large-cap, blue-chip stocks and mutual funds has almost tripled since lockdown. The total retail participation shot up to over 80% in July from the steady 76% in January of this year. In contrast, institutional participation in stock market trading fell from around 23% in January to about 14% in July.
This indicates that people are much more concerned with their own financial health due to the uncertainty created by the pandemic. In hindsight, the response is understandable as COVID-19 has not only created a lot of unemployment, but also made people seek out new ways of making additional income streams, with investing being equally accessible to all. Money seems to be going into higher-risk investments because of the greater returns offered by these financial products, which supports the theory that people are looking at stock market investing as another potential income stream during these trying times.
In conclusion, although investors are using their time wisely to invest in products that could yield high returns in the future, learning about where one’s money is going is crucial. Investing is incomplete without understanding the market and the risks associated with it. It appears that most new retail investors are carefully choosing their stocks as they have ample time on their hands to research, evaluate, and take a call before they put their money into the market.