Despite economic uncertainty and recent geopolitical challenges, the trading landscape in India remains strong. Data from the commerce ministry reveals a robust bilateral trade relationship between India and the United States, that has increased by 7.5% from $119.5 billion in 2021-22 to $128.55 in 2022-23. Increased exports of goods such as pharmaceuticals, petroleum, and jewellery are also reported to contribute to the 2.81% growth in exports to the US, amounting to a total of $78.31 billion. This trend of India’s trade surplus with the US is expected to continue in the coming years thanks to strengthening of economic ties between the two countries.
This optimistic outlook applies not only to international consumer goods trading but also to equity trading, specifically in the online segment. The combined market share of online discount broking firms, including Zerodha, Groww, Upstox, and Angel One has grown five times in five financial years — from 11% in 2017-18 to 57% in 2022-2023. More than half of the active clients of India’s largest financial market, the National Stock Exchange (NSE), now come from these brokerages. Given their size, trading volume, and client funds, Zerodha and Angel One have even been included in the qualified stockbroker list by stock exchanges.
There are several contributing factors to the widening retail investor participation in India. On top of discount brokers reducing the barriers to entry in the otherwise competitive broking industry, technological and regulatory developments are helping boost the share of online traders in India’s overall financial market. Here’s a closer look at what’s causing this shift.
Low barriers to entry
Traditional investments among Indians used to be limited to saving options with low yet stable returns like bank deposits and small savings schemes. Equity trading was considered to be beyond their portfolio risk until the introduction of online trading with low interest rates. As a result, retail investors can easily penetrate and hold a stake in equity markets like the NSE and Bombay Stock Exchange (BSE). Low-cost trading through new-age broking firms can also explain why a majority of these active clients are young and first-time investors. Of the seven crore users at the BSE, 38% are in the 30-40 age bracket, while 24% are aged 20-30.
The same report from the BSE reveals that online investment platforms enable people to trade not just across age groups, but also across different geographical areas. Urban India has deeper Internet penetration and greater access to these platforms, which explains why Maharashtra and Gujarat are still leading with their share of BSE investors.
However, smaller, semi-urban towns and tier II and III cities are also becoming more involved in online stock trading with their increased number of active Internet users. Thus, states like Assam, Jammu, and Kashmir are witnessing the fastest growth rates in terms of BSE investors. Besides low startup costs and enhanced accessibility, online brokerages also house a range of investment opportunities all within one platform. Brokerage Exness enables online trading across multiple markets and financial instruments with reliable pricing, from stocks and indices to foreign exchange and cryptocurrencies. Users also have flexible choices among trading accounts tailored to their investment needs and strategies, allowing them to diversify their portfolios with low commissions and spreads. And while traditional equity trading involves manual processing, instant deposits and withdrawals in online brokerages help new and experienced online traders alike buy and sell shares with ease.
Innovative trading tools
The exponential growth of both online traders and trading volumes in India can also be attributed to expanding domain knowledge in equity investment. Mobile and web-based platforms are helping online retailers trade with ease, but trading tools like algorithmic trading are what allow these traders to maximise trading volumes and profits. Algo trading utilises data analytics and artificial intelligence to analyse market trends, identify hidden opportunities, and manage risk in the investment portfolio. Traders can hence employ fundamental and technical analysis for more informed investment decisions, as opposed to solely relying on emotions and personal judgement.
Fyers, one of the fastest-growing investment platforms in the country with over 4.5 lakh customers, exemplifies how world-class tech can be brought into stock trading for increased confidence among retail investors. The platform offers algo trading to execute orders faster and gain more control over trades. Founder Tejas Khoday was also inspired by his experience with the New York Mercantile Exchange (NYMEX) and its price ladder trading. This trading strategy was then integrated into the platform to help traders make educated orders based on price movements and leverage market fluctuations.
Increased regulatory protection
A growing concern in India’s booming online trading industry is the vulnerability of small retail investors to fraudulent activities. These include informal consulting groups on messaging apps like WhatsApp and Telegram, as well as unverified stock tips, financial advice, and securities schemes proliferated on social media. But while online fraud has increased alongside the growth of young and amateur investors, recent changes in India’s capital market regulations have helped make the trading landscape friendlier to beginners dabbling into stock trading.
The Securities and Exchange Board of India (SEBI) is tightening the requirements related to trading in the equity futures & options (F&O) market, with a focus on protecting small retail investors. This regulatory move aligns with SEBI’s crackdown on social media influencers that peddle misinformation and artificially inflate stock prices through the so-called ‘pump and dump scheme’. All stock brokers in the country are now mandated to display risk disclosures on their platforms. This detailed information empowers trading clients to practise due diligence and risk assessment before making any investment decision.
It is clear that this new cohort of retail investors engaged in online trading is here to stay. Next-generation trading platforms like Zerodha and government bodies like SEBI are now tasked to continue addressing regulatory gaps and ensure that this demographic is not exploited for their relative inexperience in trading—so that they may continue contributing to India’s economic activity while also building wealth for themselves.
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