Millions of Indians have piled into the country’s stock market, helping sustain a strong rebound since the depths of March but raising concerns about the risks of losses as the coronavirus crisis worsens.
The number of individual investor accounts rose 20 per cent from the start of the year to 24m in July, according to Indian securities depository CDSL, which tracks Asia’s fourth-biggest stock market by capitalisation after mainland China, Hong Kong and Japan.
Analysts say the influx mirrors a global trend during the pandemic, as home-bound individuals have begun to dabble in stocks for the first time. In India, which had one of the world’s strictest lockdowns, flows into the equity market were heightened by an inability to access more traditional investments such as physical gold or real estate, while falling interest rates made safer debt investments less attractive.
Zerodha, a 10-year-old discount brokerage that has grown into India’s largest, handles more daily transactions than Robinhood, the popular US platform, according to founder and chief executive Nithin Kamath. He said his Bangalore-based platform was processing 5m to 7m orders a day, compared with Robinhood’s recently reported 4.3m.
Mr Kamath said his platform was boosted by the closure of jewellery shops during the lockdown, forcing people who might otherwise prefer buying physical gold to consider equities, which tumbled to three-year lows in March before mounting a rapid recovery.
Zerodha has 3m customers and is adding about 200,000 a month, more than doubling its rate of growth before the pandemic. The average age of its customers is 28.
“Stock markets had this whole ‘Fomo’ feeling,” he said, alluding to investors’ fear of missing out.
ICICI Securities, which has also recorded strong growth in accounts and a sharp increase in average daily turnover, last month announced a partnership with US-based Interactive Brokers to allow its customers to invest in US markets.
Vijay Chandok, ICICI’s chief executive, attributes some of the rising interest in do-it-yourself trading to a general dissatisfaction with investing through mutual funds. India’s mutual fund industry has expanded rapidly in recent years, but flows into equity-based funds have slowed since March.
“This narrative that the performance of the [mutual fund] industry had been fairly tepid had seeped into the minds of investors,” he said. “When the market crashed . . . that in a sense was the last straw. [Investors] set themselves on a path of directly investing into equity markets.”
Brokerages say mid-cap companies have proved particularly popular among this emerging class of retail investors. While the Nifty 50 index — representing India’s largest companies — has risen nearly 50 per cent from March’s low, the Nifty’s Midcap 100 index has jumped 54 per cent.
Newcomers have also piled into penny stocks, which can be particularly volatile. Zerodha’s Mr Kamath said the brokerage encouraged punters to reconsider, warning about the risks of investment and requiring customers to wait for a mobile password before completing the trade — a measure he said was intended to slow them down.
More broadly, the rush into risky assets at a time when India’s coronavirus crisis is exacerbating has raised concerns over the prospect of big losses for new investors. Data last month showed that the country’s gross domestic product shrank 24 per cent from a year earlier in the quarter ending in June, one of the world’s biggest contractions.
India last week registered more than 80,000 new daily Covid-19 infections, higher than anywhere else in the world. With 3.7m cases in total, the country is set to overtake Brazil as the second worst affected, after the US.
SR Srinivasan, a financial adviser based in Bangalore, said he had seen a surge in enquiries from prospective clients who had never previously invested in stocks.
“Because all stocks seem to be going up, including penny stocks, that can lull people into thinking that they’ve got their method right,” he said. “It may be dumb luck but people may be thinking it’s due to their strategy.”
Pradeep Mahtani, an investment adviser based in Mumbai, said he tried to convince new clients to invest in mutual funds for at least a year before moving into stocks directly.
New investors often “don’t have the patience or time to do any research”, he added. “They say, ‘Give me some names of stocks,’ and without seeing whether it’s suitable for them, they go and invest.
“Because they tend to make quick money, that’s snowballing slowly into more and more people buying.”
Additional reporting by Andrea Rodrigues