Modi effect: Retail investors are returning to the market

When 35-year-old Pawan Jain called up his online brokerage company Zerodha on Monday, he had a simple request. Since his last trade in January last year, he had forgotten his password and wanted a new one to begin trading again.

According to Nithin Kamath, Founder and CEO, Zerodha, while his company usually receives an average of 30-35 such forgotten password reset requests daily, in the last 10 days this number has doubled.

Zerodha is not alone. Since the run up to the election results on May 16 and thereafter, besides adding new customers, many brokerages have received a flurry of enquiries and calls from their long-dormant retail clients who want to turn active traders again.

What is heartening for the broking houses is that this time activity is surging in the cash segment too.

On the day Narendra Modi stormed to power at the Centre, the NSE witnessed a record 1.18 crore trades in the cash segment and 52.41 lakh trades in the equity derivative segment.

“We have added 2,000 new customers and seen an average daily turnover of ₹4,500 crore in May, making it our best month since our business began four years back. Total funds allocated for trading by our clients have also increased by 8 per cent in the last 10 days alone,” said Kamath.

Volume spike Market watchers believe the Modi factor and the consequent spike in exchange volumes, coupled with the expectation that the market is in a bull phase that will last 3-5 years, are the reasons behind investors coming back to the market.

According to Raghu Kumar, Founder of RKSV, an online broking company, investor participation in his company has grown in line with the increase in overall exchange volumes.

“We have been averaging a daily turnover of ₹3,000 crore during the year, but this past week it has spiked to around ₹4,000 crore, in line with overall exchange volumes.”

The spurt in trading activity could also be due to existing investors selling stocks they have held for the last five years.

Exit opportunity “Over the last few days our daily direct equity transactions have doubled to 60,000, as the number of investors participating has gone up to 6,000 from about 3,000,” said V Krishnan, President, Integrated Enterprises, which manages equity investments for retail clients. “About two-thirds of these investors were sellers booking profits, and only a third were buyers.”

However brokerage heads caution that it is too soon to infer that the tide has turned.

“While there is a definite resurgence in enquiries by new and existing customers, it is too early to say whether this will sustain as it takes time for things to change, as a majority of the investors are still sceptical about equity markets. A lot would depend on the economic decisions of the new government and investor education and awareness levels,” said Kumar of RKSV.

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