Markets at record high but retail activity not picking up. Zerodha’s Nithin Kamath explains why

After a muted start to the year, equity benchmark indices Sensex and Nifty closed at fresh lifetime highs on Friday amid a firm trend in the global market. However, Nithin Kamath, the co-founder, and CEO of Zerodha, shared apprehension about it being considered a ‘bull run’. He explained that retail activity was still low and may not rise due to high interest rates.

“Markets are back at all-time highs, but it doesn’t feel like a bull run because retail activity isn’t picking up. Active clients on NSE, Google, and social media trends are way below all-time highs. Unlikely that activity will pick up given the higher interest rate environment,” he wrote on Twitter.

Kamath also shared a graph portraying the sustained decline in National Stock Exchange (NSE) active clients since June 2022. According to NSE, active clients are those who have traded once in the past twelve months.

In a follow up tweet, the billionaire entrepreneur posted another graph showing investors’ declining interest coupled with a dip in Google search for the words 50 and Sensex.

According to Google Trends, Nifty 50 and keywords experienced peak interest during the 2020 COVID-19 lockdown. This was owing to the rush of retail investors in the as they were tied down to their homes.

The Zerodha chief added that high interest rates offered by low-risk fixed-income instruments – such as bank’s fixed deposits – were more attractive to retail investors, who wish to opt for safer options in the market, and offered ‘real competition’ to the online brokerage firm instead of its peers.

“I keep telling our team that our competition is really the bank’s fixed-deposit rates, not our peers. Most retail investors question whether taking the added equity risk is worthwhile when govt bonds and FDs yield 7% plus,” Kamath noted.

The RBI had brought in six consecutive rate hikes since May 2022 to rein in inflation. High-interest rates in the economy meant that banks had to raise the deposit and lending rates, offering investors lucrative options with less risk compared to equity markets.

A look at numbers

On Friday, Sensex closed 466.95 points, or 0.74%, higher at 63,384.58, and the Nifty ended at 18,826.00, up by 137.90 points, or 0.74%.

The Sensex hit an all-time high of 63,583.07 on December 01, 2022, while the Nifty hit its life-time high of 18,887.60 on the same day.

In Asian markets, Seoul, Tokyo, Shanghai and Hong Kong also ended in the green.

What is a bull run

In simple terms, a bull market or a bull run is when stock prices are rising, usually by 20%, and the market confidence is high. The opposite of a bull market is a bear market, when prices trend downward. Demand outweighs supply in the bull market and a majority of investors keep buying.