Direct retail flows into stock market plunge 64% in FY23

Retail inflow into NSE’s cash or secondary market stood at a net ₹37,400 crore in the eight months to November, down by 64% from ₹1.04 trillion in April-November of FY22, according to NSE data. Net value is the difference between buying and selling of equities.

The steep decline reflects lower returns of the Nifty, mid cap and small cap indices.

For instance, the Nifty rose just 7.4% in April-November, against a 15.6% rise in the eight months of FY22. Similarly, the Nifty Midcap 100 rose just 7.9% against 25% in FY22 (April-November) and the Nifty Smallcap 100 fell 4.4% versus a rise of a whopping 31% in FY22.

“The low figures show that retail inflows have moderated with a rise in volatility, which has resulted in lower returns, especially in midcap and smallcap,” said Siddhartha Khemka, vice president, head- research, Motilal Oswal Financial Services. Khemka expects midcap and small cap stocks to regain their “mojo” in FY24, and improving retail inflows into the secondary market.

The Nifty fell from a high of 18,604.45 on 19 October 2021 to 15,183.4 on 17 June 2022.. From this level, the Nifty has risen to a record high of 18887.6 on 1 December. However, in the past few months, stocks of PSU banks and listed defence players, which are under-owned by retail, gained momentum, said independent market analyst Ambareesh Baliga. “Retail was largely left out after laggards like state-owned banks and defence stocks gained momentum, even as market returns came off this year,” he added.

Unlike Khemka, he believes, rising market volatility induced by monetary tightening amid persisting inflation could moderate retail flows more in FY24.

Individual domestic investors, NRIs, proprietorship firms and Hindu Undivided Family are considered retail investors by the NSE.

Part of the decline in cash market inflows can be attributed to funds being allocated to equity options. Interestingly, data showed that while retail inflows into equity derivatives (futures & options) slowed to ₹ 248 billion in April-November from ₹451 billion in the year ago, flow into options rose from ₹177 billion last fiscal to ₹276 billion in FY23, till November-end, amid rising volatility.

Market veterans like Nithin Kamath, co-founder, Zerodha, warned in a business update on the risks of trading in leveraged products like options.