The Nifty and Sensex have been on a consistent rise in the last few years, thereby attracting more investors towards the stock markets. Apart from increased inflow by Foreign Portfolio Investors and Domestic Institutional Investors, there is also an evident rise in retail investor participation. As of July 2024, the Bombay Stock Exchange (BSE) has nearly 180 million registered retail investors, while the National Stock Exchange (NSE) saw its registered retail investor base cross 169 million in March 2024. So, why are retail investors flocking towards the markets? What’s driving them to stock investments? 

Let’s find out the top reasons behind the increase in investor participation in Indian stock markets. 

Increased Financial Literacy and Awareness in India

You've probably noticed how much easier it is to learn about investing nowadays. Financial literacy and awareness in India, especially among young investors like you, have significantly improved. Better access to quality information and educational resources makes understanding stock market investments more accessible.

Social media, financial influencers, and educational websites offer a wealth of knowledge that is accessible at your fingertips. Additionally, the desire for financial independence and early retirement drives more young people to explore investment opportunities.

Improved Investment Landscape in India

India's investment landscape has changed a lot recently. Today, it is far easier for you to open a Demat and trading account, thanks to multiple mobile apps and online investment platforms. The Unified Payments Interface (UPI) has made transactions seamless and swift. You will also find it easy to access and use advanced charting tools and algorithmic trading platforms, which used to be available primarily to seasoned traders.

Impact of Regulatory Reforms by SEBI

The Securities and Exchange Board of India (SEBI) has put in place strict regulatory reforms to boost market transparency and security. Whether you're dealing with Futures & Options trading or Initial Public Offerings (IPOs), SEBI has set clear guidelines to ensure fair practices. These measures give you extra confidence as an investor, making the stock market a more appealing investment choice.

Also Read - How To Learn Stock Market Trading?

The Growth of Mutual Funds and SIPs in India

The mutual fund industry in India has witnessed significant growth in the last few years. By May 2024, the Assets Under Management (AUM) reached ?58.91 trillion, up from ?10.11 trillion in 2014. The main driver of this growth is Systematic investment plans (SIPs), which are fast becoming a popular choice among investors. In April 2024, SIP contributions hit a record high of ?20,371 crore.

As you may know, many mutual funds invest in a diversified portfolio of stocks, which means your SIP contributions are directly fueling stock market growth. The ease with which you can now set up SIPs and start investing in mutual funds of your choice has made it simpler to participate in the stock market and grow your wealth.

Investor Participation in Indian Stock Markets

According to SEBI data, the Futures and Options (F&O) segment in stock markets has seen increased retail investor participation, which rose by over 40% from 65 lakh in FY23 to 96 lakh in FY24. This has raised concerns among the market regulator and Reserve Bank of India as a rising retail investor base could also result in constant market fluctuations and volatility, resulting in losses for many investors. 

To this end, SEBI formed a working committee for evaluating different ways to curbe this investor influx in markets. One of the proposals coming from this committee is to increase the lot size for trading in F&O. The lot size is the minimum quantity of contracts that you must purchase or sell when trading in the F&O segment. By increasing the lot size, SEBI aims to make it more difficult for retail investors to participate in F&O trading, thereby reducing their exposure to high-risk investments. 

Conclusion

Despite impressive strides, India's stock market journey is far from over. The relative performance still lags behind other countries, as reports indicate that only 2-3% of the country's population participates in the stock markets.

This scenario is expected to change rapidly with improving infrastructure, regulatory frameworks, and continued investor education. If you want to explore some of the top educational resources on the stock markets, you can explore a wide variety on Sharekhan Knowledge Center.