7 in 10 intraday traders in equity cash incur losses: Sebi

Seven in 10 individual intraday traders in the equity cash segment incurred losses in fiscal 2023, a study released by markets regulator Securities and Exchange Board of India (Sebi) on Wednesday said.

The report also noted a threefold surge in the number of individuals participating in intraday trading in the equity cash segment in the five years between FY19 and FY23.

The regulator’s study was based on a sample of individual clients of the top-10 stock brokers, accounting for about 86% of the individual client count in the equity cash segment during FY23.

Around one in three individuals who trade in the equity cash segment, traded intraday, according to the study.

The share of intraday traders aged below 30 years has grown to 48% in FY23 when compared with 18% in FY19, the study pointed out, indicating the surge in interest from young traders in the stock markets.

While 71% of individual intraday traders in the equity cash segment incurred a net loss in FY23, the proportion of loss-makers increased to 80% among traders who did more than 500 trades in a year.

The proportion of loss-makers among younger traders, or those below 30 years old, was higher at 76% in FY23 when compared with other age groups, the study pointed out.

The study also noted that the average number of trades by loss-makers was higher than the profit-makers.

The traders who incurred losses 23 spent an additional 57% of their total losses on trading costs, while traders who made profits spent only 19% of their profits on trading costs, the study added.

In January last year, the regulator had released the results of a study in which it found that 89% of individual traders, or 9 out of 10 individual traders, in the equity futures and options segment incurred losses, with the average loss being ₹110,000 in FY22, whereas, 90% of active traders incurred average losses of ₹125,000 during the same period.

Caution in Economic Survey

The Economic Survey 2023-24 had sounded a note of caution on Monday, 22 July, saying that while the outlook for India’s financial sector appears bright, some areas will require focused attention going forward.

The significant increase in retail investors in the stock market calls for “careful consideration,” it said, adding that “this is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern.

“For a developing economy such as India, the financial sector needs to support the banking sector and fill the gap in capital required for the economy’s growth. Therefore, the financial sector should expand at a pace that is in lockstep with economic growth. In particular, India can ill-afford the economy’s over financialization at its current development stage,” it said.

Following through on this caution, finance minister Nirmala Sitharaman, in the budget presented in Parliament on Tuesday, 23 July, hiked short-term capital gains from equity shares and equity mutual funds to 20% from 15%, irrespective of the tax slab.

Long-term capital gains, on the other hand, will be taxed at a flat rate of 12.5% without indexation.

In addition to hiking the capital gains tax, the government is also planning to focus on making youth financially literate through its newly announced employment-linked incentive scheme.

The budget apportioned ₹1.48 trillion for various skilling initiatives, with the objective of training 21 million youth over the next five years.

The scheme provides up to ₹15,000 in three installments to first-time employees registered with the Employees’ Provident Fund Organisation, with a maximum salary eligibility of ₹1 lakh per month. Employees must, however, undergo a compulsory online financial literacy course before claiming the second installment.