Indian are on a stock buying frenzy as the increase in demat accounts in financial year 2021 is at the highest ever at 10.7 million.
This is more than twice the number of net demat accounts (4.9 million) added in financial year 2020, as per Motilal Oswal Financial Services.
Vaibhav Agrawal, Chief Investment Officer, Teji Mandi with many investors starting to directly participate in equity markets, the success in the rising bull market and the poor performance of many mutual funds have further caused investors to withdraw money from equity mutual funds.
“The trend of withdrawing money from equity mutual funds could continue till the rally in the stock market slows down and begins to consolidate, thereby giving investors the opportunity to put their profits into longer time frame instruments like mutual funds,” Agrawal added.
Mutual Fund investors pulled out Rs 16,306 crore from equities in February 2021, making it the ninth consecutive monthly outflow as smaller investors booked profits amid a rally in Indian stock market.
On a month-on-month basis, mutual funds withdrew Rs 16,306 crore from equities in February as compared to Rs 13,032 crore in January 2021, reflecting an increase of 25 per cent.
As per a report by Anand Rathi Share and Stock Brokers, the number of new active Beneficial Owners accounts with CDSL increased by 2.8 million taking the total number of active beneficial to 28.9 million and as on January 31, 2021 the company reported 30.4 million accounts an increase by 1.5 million accounts in the same month.
“Within financial assets, the allocation towards equities has been rising as retail investors have usually been under-invested in equities. CDSL stands to benefit with growth in capital markets,” the report said.
According to a an earlier report by foreign brokerage, Jefferies, the post Covid period in India, similar to the global trend, has seen rising retail participation. The shareholding of small retailers has risen by 0.6ppt over December 2019 to September 2020 while that for large retail has also gone up by 0.1ppt during the period. MF’s holding had declined by 0.1ppt during the same.
“Indeed, we estimate, that retail investors direct buying in the market had witnessed net inflows of $12 bn over January-September 2020”, Jefferies said.
Even as domestic equity MFs see an outflow, domestic investors continue to add equity market exposure directly. Overall market ownership has jumped by 50bps during calendar year 2020.
The report said that inflows into Indian equity funds has turned negative for the past six months. This is the first such reversal in the past six years.
“Our analysis, however, shows that retail investors are choosing to go direct vs through mutual funds. The cumulative ownership of MFs and retail investors continues to rise. With the market breadth now widening, MF outperformance should return drawing the investors back in. We continue to remain optimistic on the overall retail participation in the market,” it said.