Is the sharp rise in Indian stocks due to retail investors?

Yesterday, the Indian stock market once again set a new high record. The two major stock indexes, Nifty 50 and Sensex, both hit record highs.

In addition to fundamentals and the favorable factors brought about by Modi's re-election, the hot IPO market has also helped India's stock rise to a certain extent.

India has risen to become one of the hottest regions for IPOs this year due to soaring prices and good prospects. According to data compiled by the media, the average increase in IPOs listed in India this year has reached 57%, surpassing the Asia-Pacific region's 32% level, and more than double the global average.

This has attracted a large number of retail investors.

According to Prime Database Group data, out of 36 IPOs on the Indian Exchange this year, retail investors purchased shares worth about 10.6 billion US dollars — an oversubscription ratio of more than 12 times.

Take the recently listed electric vehicle charging company Exicom Tele-Systems as an example. The number of subscriptions from retail investors in India has reached 120 times the number of shares issued. The stock has risen nearly 230% from its IPO price.

Prime Database Group Managing Director Pranav Haldea commented that many retail investors make short-term IPOs and don't plan to hold them for a long time:

“Most retail investors are basically trading stocks, not out of mastering company fundamentals.”

“According to the listing benefits we are seeing now, as long as we can get a quota, we can make quick money.”

According to reports, at present, all individual quotas for new share purchases in the Indian market have been fully allocated. In the next few months, at least 15 other companies are actively preparing to IPO in India, and the total amount raised is expected to reach 11 billion US dollars.

Indian retail investors become the “main force” in the stock market

Vineet Arora, manager of Singapore's NAV Capital Emerging Star Fund believes the enthusiasm of Indian retail investors is unstoppable:

“I've talked to a lot of younger investors. Most of them don't want to buy a house or real estate, and these are assets that people usually invest in soon after starting work. Now, that money is flowing into the stock market.”

It's not just about breaking new ground; in recent years, the “control” of the stock market by Indian retail investors has been expanding.

Brokerage firm Motilal Oswal said that the surge in the domestic retail investor stock pool is a key force behind the unprecedented rise in the Indian stock market over the past three years.

According to a report released by the company, in June, the asset management scale of the Indian Mutual Fund reached a new high of 730 billion US dollars. Of these, more than 0.153 billion retail accounts held more than half of the assets, and the total capital flowed into stock funds for the 40th month in a row, indicating that retail investors are very enthusiastic about investing in stocks.

Furthermore, the massive influx of retail investors after the pandemic has changed the market ownership structure. The report data shows that in the secondary market, the total shareholding ratio of domestic institutional investors and retail investors has risen from 55.1% in March 2014 to 62.9% in March 2024.

The report points out that the “high investment and low sale” concept that Indian retail investors have always held has been broken, and they have begun to choose to increase their holdings at a time when the market recovers.

Some analysts believe that thanks to the end of the general election and Modi's re-election, the Indian stock market will continue to rise for some time to come, and Modi's emphasis on infrastructure and manufacturing will continue to be the focus of the market.