The Indian stock market has displayed robust strength in the last quarter of 2023 leading the year-to-date market gains to 18 per cent, outperforming all the other asset classes. Such momentum has also triggered a bullish wave among market stakeholders. However, the retail investors have ridden the wave but the Indian retail intraday traders appeared to surrender the gains.
Over the years retail participation in the Indian stock market has massively increased particularly during covid period. The total daily volume of derivative contracts is around USD 4.3 trillion daily.
Triggers For The Bulls
“The market has delivered a remarkable performance in the last year, with an 18 per cent return in a year, it is categorical that a bullish phase has just begun. Although the bull run does not trail linearly, certain triggers and roadblocks of profit booking and pullback will be there. The 10 per cent correction is inevitable at its zenith. Fundamental reasons and macro factors also cause serious fall, however the anticipated rate cuts and India’s growth story can further fuel the prevailing bull run,” said VLA Ambala Stock Market Today.
One of the fundamental reasons that the bull run will still prevail is because the crucial sectors such as consumer durables, FMCG, blue chip banks and IT have remained suppressed. The valuations are still cheaper and the rate cuts can trigger FMCG, IT and large private bank stocks, added Ambala.
Highlighting the rate cut regime, Ambala said India is following the US Fed for rate cuts and this pattern has been perpetuated for the last three years. But economy-wise, our economy is a bit different. The US is already a developed country, so the Reserve Bank of India (RBI) should take a different approach to control inflation and boost the economy.
Traders’ Misery
According to a report by Axis Mutual Fund, the derivatives segment has grown 4 times to 4 million from 0.5 million in 2019. The derivatives trading contributes to more than 99.6 per cent of daily volume boosted by the daily expiry of indices on different days. The benchmark index viz Bank Nifty, Nifty and Sensex expire on Wednesday, Thursday and Friday respectively.
“At a system level, derivatives have a useful economic function wherein risks can be transferred from those who do not want it to those who want it. Another useful function that the product provides is that of additional liquidity in the market, beyond what is available in the cash markets. The outsized derivatives market though can itself be a source of additional macro and market risk, we have seen this in global cases with CDS and derivatives contracts. Black swan events and resultant spike in volatility in particular can drive exaggerated moves in stock prices and result in market dislocation,” Ashish Gupta, CIO, Axis Mutual Fund.
According to a 2019 Sebi report 9 out of 10 traders lose money in the derivative segment with an average value of Rs 56,000 per person. Such trades are speculative as traders hold the positions for an average of 30 minutes. Only 1 out of 100 contracts are carried forward to the next day. In fantasy sports, the take rate of the pot is 15 per cent. For every Rs 100 put in by the retail participants, they get Rs 85 back. The concept is the opposite in derivatives, with only 15 per cent of the pot returning to retail.
Retail’s Resilience
The demat accounts in India also soared to record numbers with the total demat account increasing from 39.4 million in December to 143.9 million in January 2024. Moreover, the penetration of demat accounts has reached 99 per cent pincodes in India. Additionally, the National Stock Exchange (NSE) informed that the total number of unique registered users has reached the nine crore mark on the exchange in February.
The retail investors and their participation have remained resilient and played a pivotal role in the market strength. The SIPs have also soared to record highs, the saving habits have been shifting from conventional asset classes to market products. However, foreign institutions are one of the main pillars which determine and influence market movement, and they have been net sellers. If such a sell-off continues, it can be threatening to the market momentum, although the retail investors have their fingers in this tug of war, shared Ambala.
