Strong demand for equities, especially from domestic investors, has outpaced supply of primary market issuance through IPOs and follow-on public offerings, qualified institutional placements and offer-for-sale since the pandemic.
The demand-supply mismatch in securities indicates investors’ preference for short-term returns through secondary market investments over long-term capital formation.
This is reflected in the unprecedented growth in the total number of demat accounts held by individual investors, which rose from 4 crore in FY20 to 15 crore in FY24.
A study conducted by SEBI found that the number of individuals trading intra-day in the equity cash segment has increased by close to five times, from 15 lakh in FY19 to 69 lakh in FY23, and the share of young intraday
traders (aged less than 30 years) has grown to 48 per cent from 18 per cent.
Notably, a substantial share of traders has incurred losses and the proportion of loss-making investors rose in tandem with frequency of trading.
IPO trends
An analysis of investor behaviour in Main Board IPOs by the SEBI corroborated this investment pattern, with individual investors engaging in ‘flipping’ behaviour, selling 50 per cent of shares allotted to them by value within a week of listing.
Moreover, investors exhibited greater propensity to sell IPO shares that posted positive listing gains as compared to those that listed at a loss. Individual investors offloaded more than two thirds of shares that gave a return of more than 20 per cent within a week.
Activity in the equity derivatives segment remained strong. As at end-September 2024, there was an increase of 59 per cent (y-o-y) in the turnover in futures contracts and 25 per cent in the options segment. Despite a sizeable share of individual investors making losses, turnover contributed by them in the futures and options (F&O) segment rose by 118 per cent to ₹4,107 lakh crore between September 2022 and September 2024.
SEBI published another study in September 2024, that showed the aggregate losses of individual traders exceeded ₹1.8 lakh crore over the three-year period between FY22 and FY24. Moreover, 93 per cent of over 1.13 crore individual F&O traders incurred average losses of around ₹2 lakh per trader.
On the other hand, proprietary traders and foreign portfolio investors with sophisticated trading knowledge registered significant profits. Over 75 per cent of individual F&O traders in FY24 had declared an annual income of less than ₹5 lakh and more than three-fourths of loss-making traders continued trading in F&O market despite making losses in consecutive years.