Retail participation in the stock market has seen some improvement. The National Stock Exchange ( NSE) has attracted 6,50,000 new participants on its platform during the first six months of the current financial year, the latest data calculated by the exchange. Similarily, the Bombay Stock Exchange ( BSE) has added 1.3 million participants till date from the start of the current financial year.
According to officials of both exchanges, these numbers are based on unique permanent account numbers (PAN) registered with them. PAN number registrations with NSE and BSE suggest 14 million tax payers out of the 34 million are connected with each exchange. This is via 1,400-1,500 broking members registered with NSE and BSE each. Effectively, this means at least one in every three tax payers is using the NSE and BSE platform to take exposure to the equity market, said the NSE official.
The NSE says a majority of these players, who has connected for the first time to NSE, are retail participants hailing from small towns that are beyond the top 50 cities in the country. These estimates are based on the number of PAN identity registered with the exchange. While it is not necessary that all of these are active traders or investors in the market, the numbers can give an idea of the number of people ready or are taking exposure to the equity market and the exchange through which it is being done.
NSE has 2,00,000 trading terminals spread across 2,000 towns and cities in India.
"Data shows that retail investors from non-tier cities and small towns are contributing very significantly to the total turnover in the cash market. Of the total cash market turnover, about 47 per cent comes from retail investors, in which 24 per cent turnover comes from towns that are beyond the top 50 cities. Also, about 36 per cent in overall retail participants are from such small towns. This is backed by the people trading with NSE from over 2,000 towns and cities across the country," the NSE official said.
On an average, NSE has seen cash market turnover of between Rs 10,000 and Rs 12,000 crore daily. Its equity cash and derivatives markets turnover is over Rs 1.25 lakh crore. The BSE's cash market turnover is about Rs 2,000 crore on an average daily basis and its derivative turnover, partly supported by an incentive scheme, is over Rs 20,000 crore. This shows that cash market turnover in the equity segment is 10-15 per cent of the overall turnover.
Exchanges have been criticised for low penetration and concentration of volume in the derivatives segment, which is highly speculative.
MCX-SX, which will soon launch equity trading on its platform, has said that retail investors are staying away from the market due to high concentration of volumes in the derivatives segment, where there is no downside risk clarity. The Securities and Exchange Board of India too, banned the use of mini derivative contracts in India saying it was attracting small investors and increasing their risk.
However, NSE said that the new 6,50,000 players they had attracted to their platform this year are over and above the 1.125 million players who had connected with the NSE platform during financial year 2011-12. Still, not all of the players are active participants and trade or invest on a daily basis. According to NSE, last fiscal non-tier cities accounted for Rs 11,61,273 crore of retail cash market turnover in FY12. This effectively means that non-tier cities accounted for 44 per cent of retail cash market turnover. In this, 2.21 million retail clients participated from non-tier cities, i.e. 51.41 per cent of the total retail clients participated in FY 2011-12.
The high statutory cost in the cash equity side has been a key reason for shifting of volumes from this segment to derivatives, forcing the exchanges to design more derivative products. The securities transaction tax on equity derivatives is 0.017 per cent compared to 0.025 per cent in the cash market. Earlier, retail traders were known to generate volumes for intra-day cash market traders where they squared their positions at the end of the day.