Can the Indian retail Investment Boom survive?

"An investment in knowledge pays the best interest." — Benjamin Franklin

While i absolutely adore this quote, i believe that even if you tweak the quote a bit and make it "Knowledge in Investments will pay the best interest", it would sound even more apt for today's times. Let me tell you why!

But, Why don't Indians invest in the stock markets?

India is the new rising superpower, the world's fifth/sixth largest economy (keeps shuffling) and of course, the world's fastest growing country economically as well. There is no doubt that in this century (or more like in the next 20 years), India is going to rise to become a force to reckon with. Wealth and Aspirations of people are also increasing. The rising middle class could grow to almost 70 crore by 2025 from the current 40 crore.

But, there is something amiss in all of this! Indians don't invest in the stock markets! In India, just 3.7% of the population is invested in equities (directly or indirectly), compared to 12% in China and 55% in the USA.

What could be some of the challenges here? After all, we know that equities (when diversified properly), could yield better returns than gold or real estate in the long run.

Some of the reasons could be:

1. Indians equate stock markets with gambling. They feel stocks could move either ways without much basis to it. It's all based on luck.

2. Indians don't understand finance. It is complicated and not much is ever taught in school.

3. Indian's lack the money to invest. (This could be completely untrue, we know Indians are investing in other asset classes). Stocks don't have tangibility ( a lot of Indians feel that)

4. Indians are risk averse

5. There is a stigma attached with stocks

These are a few and there could be many more reasons we are still figuring out. But when we were doing our research, more than the question of "Why should we invest in the capital markets?", we encountered the question of "How should we invest in the capital markets?".

There was a growing sentiment amongst people about stock investments. So, the why was changing to how slowly. Awareness was seeping in. The millennials and GenZ were exploring the world even beyond traditional asset classes like crypto and NFTs.

2020 was a game changer

2020 was the year which changed a lot of things. It was the year of the pandemic and wild swings in capital markets worldwide. NIFTY dipped from 12500 to 7600 before bouncing back to reach all time highs in 2021. The markets witnessed everything.

But 2020 also changed a lot for the Indian people willing to enter the markets. There was a massive 500% jump in the number of people opening their demat accounts per month from Feb 2020 to May 2021. This is what could be called the "RobinHood" era of India, or more like "Zerodha/Groww/Upstox" era of India. While most of the people opening their demats were new, some of them were flocking to newer discount brokers in search of better service and rates.

Demat accounts can be opened with a few clicks now. No long physical KYCs, no long list of documentation, no hefty fees. Discount brokers have dug in all pipelines to smoothen the investment processes. Rest the introduction of UPI and lowering of data rates by Jio, has strengthened the investment infra even further.

But what's the cause of concern in this growth?

According to a data, 72% of the Investors opening their demat accounts are folks who are completely new, and generally what happens when so many new people enter the markets together, utter chaos.

Newer folks (mostly), invest on their guts, without any research. They follow the herd blindly and without much caution, end up investing in highly volatile instruments which could lead to very bad results. This could also result in mass hysteria when markets are down and major exodus of these folks. This isn't good for our markets and our country by any means.

Relying on unsolicited advice, advice from bad stock tips and even advice from friends and family who are not experts should be highly warned against. This might look pretty basic to most of you. But look beyond. There is huge world out there still making these mistakes.

But most people that we spoke with, told us that they did not find enough alternates. While, they looked out for SEBI registered RIAs, there were just so few. For a country of 138 crore people, we have just 1324 RIAs in the country.

How can we expect so few of them to help out a billion?

But along with so many other things which happened in the Indian markets, we also saw something crazy happening on Youtube, which had major correlations with the market.

(In the Image) A number of major You-tubers started to grow rapidly in the pandemic era, along with the markets. On the left, you see the growth in Youtube views of such You-tubers compared with the NIFTY50 chart on the right.

When help was not available, people flocked to Youtube to seek help about Investments and Personal Finance.

This trend caught our attention and 6 good friends, left their jobs to start something to help the average Indian invest better in the capital markets.

More on that later, in the next blog!