Primary Market Subscription on RBI Retail Direct Platform Surges 78% YoY in November
The Reserve Bank of India’s (RBI) Retail Direct platform has witnessed a significant increase in activity, with primary market subscriptions by retail investors rising by an impressive 78.38% year-on-year (YoY) as of November 18, 2024. The surge highlights the growing preference among retail investors for government securities as a secure investment option.
Key Highlights of November’s Activity
- Primary Market Growth:
The total primary market volume on the RBI Retail Direct platform reached ₹5,624.85 crore as of November 18, 2024, up from ₹3,153.31 crore in the same period last year. Treasury bills were the most popular choice among retail investors. - Treasury Bills Lead:
Treasury bills saw subscriptions totaling ₹3,888.36 crore, marking an 82% growth from ₹2,135.67 crore in November 2023. Despite falling cut-off yields due to improved liquidity conditions and increased demand, treasury bills remained a favored instrument. - Demand for Other Securities:
- Central Government Dated Securities: Subscriptions rose to ₹684.94 crore from ₹540.41 crore last year.
- State Government Securities: Investments reached ₹405.06 crore.
- Floating Rate Savings Bonds: Contributions totaled ₹347.88 crore.
- Sovereign Gold Bonds: Retail investments stood at ₹298.61 crore.
- Secondary Market Activity:
While secondary market investments increased, the total traded volume remained relatively muted at ₹941.57 crore compared to the primary market. This represents a rise from ₹501.29 crore in the same period last year.
Reasons for the Surge in Primary Market Activity
- Narrow Yield Spread:
The difference between yields on 10-year securities and treasury bills has narrowed to 26–42 basis points. This flattening yield curve encourages investors to opt for shorter-term instruments like treasury bills, offering relatively better returns with lower risk. - Ease of Access:
The RBI’s Retail Direct platform and subsequent launch of the Retail Direct Mobile App in April 2024 have made it easier for individual investors to participate in government securities auctions. - Safety and Liquidity:
Retail investors, including high-net-worth individuals (HNIs), are drawn to treasury bills for their safety and liquidity, especially as these securities have become readily accessible through the platform.
Challenges in the Secondary Market
Despite a rise in secondary market activity, liquidity remains a concern, particularly in the odd lot segment designed for retail investors. Trades in this segment occur in multiples of ₹10,000, contrasting with the standard lot segment for institutional investors, where trades are conducted in multiples of ₹5 crore. Experts attribute the muted secondary market participation to the lower liquidity in these smaller odd lots.
Important Insights
- Primary Market Popularity: Retail investors prefer the primary market due to the accessibility and direct participation in government auctions.
- Treasury Bills as a Focal Point:
- Short-term debt instruments like treasury bills dominate due to their attractive risk-return profile.
- Institutional support and better liquidity conditions make treasury bills a stable choice.
- Secondary Market Limitations:
- Odd lot segment liquidity issues restrict retail participation.
- Standard lot segment remains dominated by institutional players.
The Retail Direct platform has emerged as a game-changer, simplifying government securities investments for retail investors. The consistent growth in primary market subscriptions underscores the platform’s success in making safe and accessible investment options more appealing. Addressing secondary market liquidity constraints could further boost participation and strengthen the market ecosystem.
