All about retail ownership of the stock market

We’ll start with the figures for the quarter ended December 2019, as it was just before the market’s steep decline in the January-March 2020 quarter and the massive upswing thereafter. In terms of total market cap (ie, total market capitalization vis-a-vis floating stock), among stocks listed on the NSE, retail ownership accounted for 8.4% of the total market cap. As a number, 8.4% may look to the downside, but that is the nature of stock market ownership.

At the end of December 2019, Indian promoters held the bulk of it (32.2%), followed by foreign promoters (9.8%), i.e. 40% of promoter holding. Foreign institutional investors were 22.2% and other major owners were the government (8.2%), mutual funds (7.8%), banks, FIs and insurance companies (5.4%) and non-promoter corporates (3.5%). Looking at the movement of retail holdings of the stock market, it remained at 8.4% till the end of March 2020, at the end of the disturbing correction from January to March 2020. The extent of retail ownership continues to rise and stood at 9.3% as of the end of September 2021, the latest available data point. It is not just the ownership of the shares, there are other indicators of the extent of retail ownership. As of September 2021, the number of active investor demat accounts with CDSL (Central Depository Services Limited) and NSDL (National Securities Depository Limited) stood at 70 million.

From a perspective, it was 20 million in 2012 and 50 million in December 2020. Growth in new investor demat account, over 14 million in 2020-21, as compared to less than 5 million in 2019-20. In the first half of FY 2012, the number of new demat accounts of about 15 million is already higher than in the whole of FY 2011.

This number is indicative of the extent of retail participation. And not only that, we will now see the participation of retail in the cash market business of NSE. In the turnover data, what we have just called retail is defined as individual investors i.e. domestic investors, NRIs, Sole Proprietorship Firms and HUFs. This segment is the largest contributor to the trading volume in the cash market. In 2015-16, the sector’s contribution to the market turnover was 33%. It increased to 45% in 2020-21. Other major contributors to trading volume are proprietary traders with 25%, FIIs with 11.5% and domestic institutions with 7.5%. In 2021-22, the share of retail trades was slightly muted at 43.2%, but still much higher than 27% of prop trades and 11% of FIIs.

If we look at a long history, shares were more owned by retail. In 2002, retail ownership accounted for about 18% of the total market capitalization. However, the subsequent fall, touching the earlier low of 8.4%, is not a decline in itself. The promoter holding, including foreign promoters and the government, was around 35% in 2002, which has now increased to around 50%. FII ownership has now increased from about 8% of the total market cap in 2002 to over 20%. Therefore, on a relative basis, there was a decrease in percentage terms in retail holdings, due to increase in holdings by the two major segments. The latest increase in individual ownership, from 8.4% mentioned earlier to 9.3%, is in tandem with promoters and foreign investors.

Net-net, the increased participation of individual investors in the stock market is an encouraging sign. Ownership and business volume is not a closed cycle of the big boys. The investor base is so diverse from the macro perspective of corporates. From the investors point of view, many investors are reaping the benefits of long term wealth creation through portfolio allocation in equity stocks.

In addition to the indirect routes of Mutual Funds, PMS and AIFs, the numbers discussed here are of the direct routes. However, a word of note for the first generation investors in the stock market, those who have started participating in the 2020 rally. Unless you are in the thick of it, this is not a quick money making casino. This is an opportunity for long term wealth creation through the ownership of quality promoters.

Joydeep Sen is a corporate trainer and author.