Future trends in Indian stock market: Growth in average daily turnover, Growth in index investing

This article explores all these big changes that the Indian stock markets are going through and the new changes expected in the future.

The Indian stock market: What are the new changes expected in the future?

Over the past few years, the Indian stock markets have undergone a sea change. From being challengers to traditional brokers just a few years back, discount brokers are today the market leaders. With the increase in retail participation in recent years, the number of demat accounts in India has tripled. Indian start-ups are no longer considering only NASDAQ listings; a couple of them have gone ahead and listed on the Indian stock exchanges and many more are in the process of doing so. After disrupting discount broking successfully, new-age financial services companies are looking to disrupt mutual fund investing.

The last few years have seen the rise of discount stockbrokers such as Zerodha, Upstox, etc. These discount brokers have disrupted the stockbroking industry with their discounted pricing model.

discounted pricing model.

Note: The above data is as of 30 June 2021

As seen in the above table, out of the top 10 stockbrokers, 4 are discount brokers. Interestingly, the top 2 slots are occupied by Zerodha and Upstox, which are discount brokers. Also, these two discount brokers together command a 30% market share.

Future perspective: The discount brokers have disrupted the stockbroking industry with their discounted price model. They are expected to continue doing this in the future, with more discount brokers grabbing market share from traditional stockbrokers. Traditional stockbrokers will be forced to match the discounted pricing model of discount brokers. Some of them are already doing this piecemeal.

IPO season: Listing of new-age companies

In India, we have seen the listing of many traditional businesses with handsome listing gains in the last couple of years. 2020 was a very volatile year for the stock markets. During Mar-Apr 2021, we saw a big fall due to COVID-19 and the resulting lockdowns. But, in the second half of the year, we saw the markets bouncing back equally sharply. During 2020, 16 companies braved the volatility and came out with IPOs.

Related: Important things to know before investing in the stock market

Listing of new-age companies

Related: Exploring new beginnings and comebacks in the stock market

Note: The current gain/loss is as of 12 August 2021.

As evident from the above table, 2020 saw 16 companies coming out with IPOs:

15 companies have given positive returns to investors
8 companies have given handsome gains of more than 100% in one year of listing, thus doubling investors’ money
11 companies have given more than 50% returns in one year of listing, which is a commendable performance

The IPO euphoria continues in 2021, and now start-ups have also started participating. Zomato and CarTrade have already come out with IPOs. Zomato received a very good response from investors, and the issue was oversubscribed heavily. It listed with an excellent gain of around 50%. 

Many other start-ups like Paytm, Nykaa, Delhivery, PolicyBazaar, Urban Company, etc. are also planning their IPO. Some of these companies have already filed the DRHP with SEBI for IPO approval. Indian investors are finally getting to invest in Indian start-up IPOs, something that they have been long waiting for.

Chart: IPO yearly statistics

Chart: IPO yearly statistics

As seen from the above table, last year (2020-21) saw the second highest IPO fundraising exercise, with 69 companies raising Rs 74,707 crore. 

Future perspective: In the first half of 2021-22, 24 companies already raised Rs 37,366 crore through IPOs. If the LIC IPO hits the market this year, 2021-22 will see the highest IPO fundraising ever in a single year. Also, given the pace at which other traditional businesses and start-ups are announcing their IPOs, there is a high likelihood that even without the LIC IPO, 2021-22 could see the highest fund raising through IPOs.

Growth in the penetration of demat accounts

In the last few years, the penetration of demat accounts has been rising fast due to the factors discussed in the above sections: (a) Increase in retail investors who are investing directly in stocks, and (b) The deluge of IPOs and the listing gains on Day 1.

Chart: Demat accounts opened annually

Demat accounts opened annually

As seen in the above table, in 2013, we had just 21 million demat accounts in India. But, from FY 2019, we started seeing a rapid surge in the demat accounts opened annually. In FY 2020, the number of overall demat accounts jumped to 41 million. In FY 2022, this number jumped further by 50% to 62 million demat accounts.

Table: Demat account penetration in India

Demat account penetration in India

As seen in the above table, in 2020, the penetration of demat accounts was at just 4%, despite the surge in new demat accounts opened in the last couple of years. 

Future perspective: In the next couple of years, if the current pace of new demat account opening is sustained, India will be able to match the demat penetration of some other countries, such as China.

Growth in average daily turnover

The massive participation by retail investors in the IPO market and direct investing in the secondary market has led to a big rise in average daily turnover on Indian stock exchanges.

Chart: Increase in average daily turnover

 Increase in average daily turnover

As seen in the above table, the average daily turnover in 2019-20 reached Rs 36,432 crore, going up by 2.5 times over the Rs 14,048 crore in 2010-2011.

Chart: Increase in average daily turnover in 2021

Increase in average daily turnover in 2021

As seen in the above table, the average daily turnover in 2021 (around Rs 70,000 crore) has further doubled from a high base of 2019-20 (around Rs 36,000 crore).

Future perspective: Given the rapid rate at which the average daily turnover is rising, the day is not too far when we will see an average daily turnover of Rs 1 lakh crore and above.

Related: How to turn stock market volatility into an investment opportunity?

Growth in index investing

In the above sections, we saw how investors are opening new demat accounts at a rapid pace, participating in IPOs in primary markets, and directly investing in secondary markets. Alongside, investments in mutual funds are also increasing at a rapid rate. However, many investors these days prefer to invest in low-cost passive funds (index funds and ETFs) rather than active funds.

Growth in index investing

The last six years have seen a massive rise in index investing in India. The Assets Under Management (AUM) of index mutual funds has increased tenfold from Rs 2452 crore to Rs 24,920 crore.

Two major benefits of investing in index funds are low cost and diversification. Some start-ups like Navi Mutual Fund, backed by Sachin Bansal (former Flipkart co-founder), plan to disrupt investing in mutual funds. Navi Mutual Fund has launched the Navi Nifty 50 Index Fund with the lowest expense ratio of 0.06%.

Chart: Navi Nifty 50 Index Fund with the lowest expense ratio

Navi Nifty 50 Index Fund with the lowest expense ratio

As seen in the above chart, the expense ratio of the Navi Nifty 50 Index Fund is 0.06% as compared to the industry average of 0.20%.

Future perspective: In some parts of the world, including the US and Japan, passive investing (ETFs and index funds) has either already overtaken or is expected to overtake active investing in the near future. In India, passive investing has seen a massive rise in the last few years and is expected to continue to attract strong investor interest in the future.

Passive investing is unlikely to overtake active investing in India any time soon. However, start-ups like Navi Mutual Fund and some others like Zerodha (which proposes to launch mutual funds soon) are expected to disrupt mutual fund investing, just like how they disrupted the stockbroking industry.

Last words

Over the past few years, start-ups have been disrupting almost every industry, and the capital markets are no exception. 

a) Disruption of the stockbroking industry: Discount brokers have successfully disrupted the stockbroking industry. They took stockbroking to the masses and that too at a low cost. It remains to be seen if they can disrupt mutual fund investing and other categories of the capital markets industry.
b) IPOs - Listing of new-age companies: With the listing of start-ups and new-age companies, domestic investors are finally getting a chance to participate in the growth story of these companies. It is something that they have been waiting for a long time.
c) Penetration of demat accounts: With the penetration of demat accounts, individual investors from every corner of the country are able to participate in the primary markets (IPOs) as well as in the secondary market (trading and long-term investing).
d) Growth in index investing: Index funds are easy to understand for individual investors. Navi mutual fund recently launched India's cheapest index fund. Many other new-age companies are waiting for their license to start mutual funds business. Individual investors can look forward to innovative and low-cost mutual fund products from these AMCs. It remains to be seen if these new-age companies can disrupt the mutual fund industry in the same way as they did with the stockbroking industry.

In the future, start-ups with the help of technology are expected to help in increasing the penetration of capital markets but at a lower cost. This wide reach with low costs will help the Indian masses to participate in the capital markets, which directly contributes to the growth of the Indian economy. Interesting times lie ahead for individual investors!


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