Surge in retail participation in Indian market is nothing less than a revolution, says Raamdeo Agrawal

The recently witnessed surge in retail participation in Indian stock market is nothing less than a revolution, says Raamdeo Agrawal, Chairman and Co-Founder at Motilal Oswal Financial Services.

“India's retail equity revolution is nothing less than revolution in what has happened post COVID and what is happening and what could happen in next three, four years,” Agarwal said in an interview with CNBC-TV18 at the recent Motilal Oswal Annual Global Investor Conference.

A: I think the mood is set, we are at all-time high. And after a long time, there will be a full participation. Because last year was the first year post COVID, still participation was muted. But this year, I think investors have come in full force. And apart from domestic participation, we are also getting delegates from newer countries like Korea, Taiwan, Japan besides the usual countries like  Hong Kong, Singapore, US and London —those guys have been coming in the past, but now we are seeing a slew of new countries joining in. So we'll get opportunity to interact with all of them. And even the company's lineup is about 220-225 companies. So I think it's a big mela for next three days. And I'm trying to catch few trends. What's happening in the economy on the ground? Because all the operators are there. Second is that what is the thinking of FIIs in terms of their confidence in India? How do they think and their allocation there? Would they like to be still conservative or would 2023-2024 will be the year of again, coming back into Indian market. So those are discussions which are going to come. And we'll be listening more than not too much of asking.

A: I think it is too early, I have just come in here to the venue and through the day, till late night and tomorrow, and day after, two-three days I'll be interacting with all of them. And during the conversation only we can figure out what kind of interest they have. But right now, I would say there is an optimism and the number of — I'm going by the fact that the kind of a request, which is there for the participation and the number of meetings. I think we can do about 7,000-8,000 meetings effectively. But the request is for 25,000-30,000 meetings. So that tells me that investor interest is very high. This is mainly domestic demands, but even the foreign demands for the meetings are quite high.

A: So, I think it has to do with the structure of the market, still the institutional activity particularly from the FII side for the last month or so is a little subdued, but we are passing through one of the — I am presenting on that India's retail equity revolution is nothing less than a revolution in what has happened post COVID and what is happening and what could happen in next three, four years. So we are trying to compile this thing. So the impact of retail equity revolution, or demat accounts are opening, participation going from 30-40 million to 120-130 million and trying to become more like 200 million in the years ahead. I would think that interest level will actually become bigger and bigger. And these are the counters where there is a lot of buying power. So that tends to distort at some point of time. But eventually the corporate earnings underlying will decide the levels where it will settle.

A: Our biggest problem is that we have seen 40 years of the market. We have seen such low levels of the market the midcap, the smallcap were so neglected. I mean even with single digit P/E , they were thankful. But today it is a different kind of thing. So many times, I'm not able to appreciate the valuations granted to small or mid-sized companies, of course, they're growing very rapidly. So that is the kind of thing but as I said, the structural boom for the retail side, and retail is not happy buying HDFC Bank and ICICI Bank, they're happy playing out on more on this mid and small size companies where they have access to the information. And they can also size up their bets. So I would think that excitement will continue. Of course, it may shift from one sector to other sector, one company, the other company because no company can keep growing to the sky. But I think you will find a lot of excitement in the small and mid-caps. And the names of the companies will keep changing, today it is defense tomorrow, it could be NBFC, day after it could be some other themes. So whatever theme comes, I think that sector will remain quite exciting.

A: Yeah so what has happened is that in the past till about January 2020, so this entire phenomenon is just about three years old. So, before that, the retail participation was extremely muted. Let me give some number. The number of demat accounts opening every month was about three to four lakhs and at best it would go to five lakhs. The moment the digital onboarding is started, it shot up to 30 to 40 lakhs. Now, the average between 2020 and 2023 is more 2.5-3 million per month and in between when the market was correcting it dipped and now again it has come back to 2.5-3 million. So, this is very relentless. There is lot of juice in the number of participants which are going to come in. You can imagine, from 40 million to 130 million, and that going to 250 million. So, the at least the boom in participants is on. Now what it will do see that two, three forces coming together — one increase in number of participants, second, the increase in disposable income of all these guys. And third is the increase in corporate earnings. So when all three come together, and if you look at from the FII, side – FIIs in last 30 years have sold only five times and last time was the last year. So I would think probabilistically they would not be net seller in a meaningful way for next two, three years. So now you have foreigners buying, retail buying, corporate earnings very good. I think you cannot get a better picture than this.