Rise of the individual investor in crisis : a study on retail market participation during the covid-19 outbreak

Abstract

The deadly SARS-CoV-2 i.e., COVID-19 outbreak brought the human life to a standstill. To contain the outbreak, the government imposed nationwide lockdowns, suspended all services and institutions (with minimal exceptions for essential services), and shut down all public transportation. The number of retail market participants in India expanded dramatically during this period of uncertainty and economic stagnation. The number of demat accounts registered in 2020 increased thrice over the three years prior.

Through an examination of this phenomenon, the study seeks to identify and map the factors that enabled the surge in retail investor participation. A causal mechanism of this surge in retail market participation using the process-tracing method is developed to further unravel this phenomenon. A qualitative causal approach has been used for research and the methods include process-tracing method for unravelling the causal mechanism, and semi-structured in-depth interviews & secondary research for developing the causal hypothesis and to substantiate the mechanism. The objective is to understand the impact of policy measures that led to a surge in individual investor participation, and to evaluate whether this increased participation was a consequence of greater financial literacy.

The development of causal mechanism led to identify seven major factors that contributed to the surge viz. increased internet penetration, development of public digital infrastructure, ease of access to knowledge, emergence of fintech start-ups and online trading platforms coupled with low interest rates offered by the banks and increased disposable income and extra time at hand due to pandemic induced lockdowns. These together led to this phenomenal rise in individual investor participation during the COVID-19 era. For now, the verdict on sustainability & quality of this surge should ideally put on hold because first, we are witnessing the continual rise in participation and second, investing operates in cycles of 5 to 7 years and because the phenomenon is operative and contemporary.