There is a need for market regulators to ensure that retail investors are constantly informed and educated about the market dynamics as they are “highly sentiment driven”, according to an industry report.

Retail participation contributes to improving the liquidity of markets and the depth of the order book, the Assocham-CareEdge Ratings report said.

A diversified investor base, comprising both retail and institutional investors, is important for market resilience in emerging markets during periods of volatile international flows. However, it could also add to greater market volatility.

“Retail investors are highly sentiment driven and tend to engage in more speculative trading rather than in long run buy-and-hold investment strategies.

“This could amplify market downturns and upturns. Therefore, there is a need for market regulators to ensure that the participation is informed and educated,” the report said.

Commenting on the report, Assocham secretary-general Deepak Sood said strengthening investor awareness is imperative for the smooth functioning of the market.

“Easy and improved access to digital financial services has resulted in increased retail participation of investors in the capital market, which also calls for a robust framework for investor protection, education, and awareness, given the significant technological advancements,” he added.