After retail investors, prop desk has increased participation in stock markets

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It is a well-known fact that retail investors are now the big bulls of Indian equity markets. The dream run over the past 18 months and with most Indians locked up at home, the stock market turned out to be entertaining, providing the adrenaline rush and above all, giving good returns. The rally in the markets left many with the FOMO (Fear of Missing Out) feeling and it played out well as over three crore new investors walked into Dalal Street.

Data available with National Stock Exchange (NSE) showed that retail participation through direct investing has surged steadily over the last six years. The market share of individual investors increased sharply by 10.2 percentage points to 43.2% in FY22 (until September 2021) from 33% in FY16. While their share stood at 45% in FY21. The rising share of the retail investors was offset by the decline in the share of FIIs and public and private corporates during the same period.

Trends in share of client participation in Capital Market at NSE (%)

In fact, the collective liquidity of retail investors seems more than the institutions, as they have been leading the rally last few months despite FIIs selling Indian markets.

Besides the increased share of the retail investors, even the share of proprietary traders also known as prop desk has gone up. ‘Proprietary Trading’ is when a member trades on an exchange on its own behalf. As directed by SEBI and in pursuance of byelaws members are advised to specify the nature of the order in terms of the order being a ‘Client order’ or ‘Proprietary order’.

In the last seven years have witnessed the share of Proprietary traders going up by 6 percentage points from 21% in FY16 to 27% in FY22 (until September 2021).

“Prop desk are increasing their participation as there is an opportunity to make money in the primary markets. Whether it is the treasury of a company or a prop book they are looking for listing gains and once they get it they take profits off the table. While in the secondary market prop desk has a different connotation as they take a call on a particular stock, or a sector or they do arbitrage between cash & future which is the job of prop desk. While in the primary market offers scarcity premium,” said Arun Kejriwal, Director of KRIS Capital.

In the secondary market prop desk are ongoing with their normal business operations but increased activity in primary markets has led to increasing in their share of market participation, Kejriwal added.