Nithin Kamath, CEO of India’s largest online brokerage firm, estimates that his platform processes an average of 10-12 million orders per day. More and more, these are newbie investors under the age of 30, executing dozens of transactions at lightning speed from their cell phones.
Young investors like those at Kamath’s Zerodha Broking Ltd. – which is now known as Robinhood Markets Inc. in India – helped push its stock market to record highs this year, but many are now buying at a time of mounting risk.
India’s benchmark S&P BSE Sensex has risen more than 20% in the first 10 months of this year, helped by the central bank’s efforts to inject liquidity into the economy. But it has fallen almost 8% from an all-time high reached in October, in part due to expectations that interest rates will rise amid a pick-up in economic activity and inflation. . Globally, stocks have also been volatile due to concerns about the global spread of the omicron variant.
In recent weeks, brokerage houses including Goldman Sachs Group Inc. and Nomura Holdings Inc. have lowered their outlook for the Indian stock market, signaling high valuations. Meanwhile, the poor start of the country’s largest initial public offering, from digital payments pioneer Paytm, has already left many retail investors with losses.
The more uncertain market outlook means that small investors could face substantial losses in a downturn. But returns on traditional investments like savings deposits remain low, encouraging Indian millennials to keep investing money in stocks.
In the eastern city of Udaipur, Dushyant Rathore, 35, who runs a boutique hotel chain with his family, says he has stepped up his equity investments during the pandemic after strict lockdowns around the world put the hotel industry at a standstill.
Rathore’s stock portfolio is now worth 11.5 million rupees ($ 150,000) after doubling in value from March 2020. It is not retreating now, and it is even pushing its younger cousins ​​and other family members invest a portion of their savings in stocks in small, staggered amounts.
“It’s probably one of the best options for someone to build wealth,†Rathore said. “While business is slowly picking up as travel picks up, I plan to keep pace with my investments. “
Since a low in March 2020, when stocks plunged around the world on signs the coronavirus was spreading around the world, India’s Sensex has risen by around 119%, the highest among countries with Stock markets are worth $ 1,000 billion or more.
Some analysts see reasons for caution. Despite recent declines, the one-year futures price-to-earnings ratio for the Sensex is close to 21, compared to 12.3 for the MSCI Emerging Markets Index, making Indian stocks relatively expensive.
“When people come to me telling me that I manage my monthly household expenses in the capital markets, it is a matter of concern,†said Sameer Kaul, managing director of TrustPlutus Wealth India Pvt., Which manages nearly $ 110 billion. rupees in assets. “The market is out of step with the real economy and if people think they can make money easily like in a casino, that is a worrying sign.”
Great IPO
Earlier this year, Devashish Pahwa, a 31-year-old entrepreneur in the New Delhi garment industry, invested around Rs.200,000 from his own and his family’s accounts into One 97 Communications Ltd., the operator of Paytm. But the stock has plunged 39% since its IPO last month amid doubts about the startup’s path to profitability. He reported a larger loss for the last quarter.
Paytm is a household name in India and Pahwa says he hasn’t looked at his finances as carefully as he usually does before investing. “I didn’t read the numbers,†Pahwa said. “It was my mistake. But I’ll do more research for future IPOs.
Pahwa believes there will be a market correction. Although he has become more cautious, he has not sold any Paytm shares or made any profits on his other equity investments, which are worth between 350,000 and 400,000 rupees. He also says he will buy into any company he expects to do well in the years to come, especially when stocks go down because that would make them cheaper.
From Vietnam to South Korea, more and more families are pumping money into the stock markets, but the rate at which India is adding new investors is unprecedented. Retail investors have invested Rs 860 billion in the Indian National Stock Exchange’s spot market this year, up from Rs 512 billion in 2020.
In early 2020, India was adding 400,000 investor accounts each month, according to its market regulator. By 2021, that number has grown to around 2.6 million, or about half of New Zealand’s population.
Despite the decline in Sensex, November was one of the best months for brokerage firms. Zerodha opened nearly 400,000 new investor accounts last month, while competitors like Angel One and 5paisa.com said they also added similar numbers.
Young investors have little to lose, Kamath said. “They have a long road to future earnings. You make mistakes, you learn and you bounce back.
Despite the recent downturn, there may still be room for new investors. The retail penetration of Indian stocks is tiny compared to other countries.
Indian households invest 7% of their financial assets in equities against 30% on average for other large emerging markets, according to Gaurav Patankar, analyst at Bloomberg Intelligence. Households in Latin America own more than 40% of equities, while the United States owns 50%.
“At some point, the higher returns in equities will stop, but that will not trigger a return to other assets,†said Ashutosh Tikekar, head of global markets for India at BNP Paribas SA. “The rate at which investors enter the market may decrease, but it will not lead to an exodus.”
