Retail Investors: India’s Robinhood Investors Might Go In A Shock As Stock Risk Builds Up – archyde

Von Nupur Acharya and Ishika Mookerjee

Nithin Kamath, the CEO of India’s largest online brokerage, estimates that his platform handles an average of 10 to 12 million orders a day. They are increasingly coming from first-time investors under the age of 30 who are executing dozens of trades at lightning speed on their cell phones.

Young investors like Kamaths Zerodha Broking Ltd. – now known as India’s Robinhood Markets Inc. – helped drive the stock market to record highs this year, but many are buying now at a time when risks are mounting.

India’s benchmark S&P BSE Sensex Index rose over 20% in the first 10 months of this year, aided by the central bank’s efforts to pump liquidity into the economy. However, it has fallen nearly 8% from an all-time high in October, in part due to expectations that interest rates will rise amid economic activity and inflation. Globally, too, stocks were volatile amid concerns about the global spread of the Omicron variant.

Over the past few weeks, brokers like Goldman Sachs Group Inc. and Nomura Holdings Inc. have slashed their outlook for the Indian stock market and curbed expensive valuations. Meanwhile, a weak debut of the nation’s largest IPO of all time for digital payments pioneer Paytm has already left many retail investors at a loss.

The more uncertain market outlook means retail investors could suffer significant losses in a downturn. But returns on traditional investments like savings remain low, encouraging India’s millennials to keep investing money in stocks.

In the eastern city of Udaipur, 35-year-old Dushyant Rathore, who runs a chain of boutique hotels with his family, says increased investments in stocks during the pandemic after severe lockdowns around the world brought the hospitality industry to a standstill.

Rathore’s stock portfolio is now worth 11.5 million rupees ($ 150,000) after doubling in value as of March 2020. He’s not pulling back now, and is even urging younger cousins ​​and other family members to share some of their savings in small, staggered amounts.

“This is probably one of the best options for someone to create wealth,” said Rathore. “Although business is slowly picking up now with travel resuming, I plan to keep my investment pace.”


Since hitting low in March 2020, when stocks plummeted around the world on signs of the coronavirus spreading around the world, the Indian Sensex is up about 119%, the highest among countries with stock markets valued at $ 1 trillion or more.

Some analysts see cause for caution. Despite the recent declines, the annual P / E ratio for the Sensex is close to 21, compared to 12.3 for MSCI’s Emerging Markets Index, making Indian stocks relatively expensive.

“When people come and tell me that I have my monthly household expenses in the capital markets, it is worrying,” said Sameer Kaul, general manager of TrustPlutus Wealth India Pvt., Which manages nearly 110 billion rupees in assets. “The market is out of sync with the real economy and when people think they can make easy money like in a casino, it is a worrying sign.”

Earlier this year, Devashish Pahwa, a 31-year-old entrepreneur in the New Delhi apparel industry, invested around Rs 200,000 from his own and his family’s accounts in One 97 Communications Ltd., the operator of Paytm. But the stock is down 39% since it was listed last month amid doubts about the startup’s path to profitability. It reported a larger loss for the last quarter.

Paytm is a household name in India and Pahwa says he didn’t dig into finances as closely as he usually does before investing. “I didn’t go over the numbers,” said Pahwa. “That was my fault. 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 shares in Paytm or made gains on any of his other equity investments, which are worth between Rs.350,000 and Rs.400,000. He also says he will buy his way into any company that he expects to do well in the years to come, especially if stocks fall as it will make them cheaper.

From Vietnam to South Korea, more and more families are pumping money into the stock markets, but the pace at which India is adding new investors is unprecedented. Retail investors invested Rs 860 billion in the Indian National Stock Exchange’s cash market this year, compared to Rs 512 billion in 2020.

In early 2020, India added 400,000 investor accounts every month, according to its market watchdog. In 2021 that number has grown to about 2.6 million, about half of New Zealand’s population.

Despite the Sensex’s withdrawal, November was one of the best months for brokers. Zerodha opened nearly 400,000 new investor accounts last month, while competitors like Angel One and have also added similar numbers by their own account.

Young investors don’t have much to lose, Kamath said. “You have a long way to go in future income. You make mistakes, you learn and you recover. ”

Despite the recent downturn, there may still be room for new investors to get in. The retail penetration in India’s stocks is tiny compared to other countries.

According to Gaurav Patankar, an analyst at Bloomberg Intelligence, Indian households invest 7% of their financial wealth in stocks, compared with an average of 30% in other major emerging markets. Households in Latin America hold more than 40% in stocks, while the US holds 50%.

“At some point the higher stock returns will stop, but that will not trigger a return to other assets,” said Ashutosh Tikekar, Head of Global Markets, India at BNP Paribas SA. “The pace at which investors enter the market may slow, but it will not lead to an exodus.”


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