Millennials pile into stocks as experts fret

Millions of young Indians are dabbling in stocks for the first time as they remain stuck at home, with many of them trying their hands at trading shares to boost income amid pay cuts and job losses.

Securities and Exchange Board of India (Sebi) data showed that investors opened a record 2.4 million demat accounts in the three months to 30 June, or 5.6% of the total number of such accounts, reflecting the growing retail participation in stock markets. In the six months ended June, 3.9 million accounts were added, totalling 43.2 million.

Many of these new investors were lured into trading by the sharp plunge in stock values after the lockdown was announced in end-March, hoping to make a quick buck as share prices rebound. Others took to day-trading, hoping to supplement incomes as they had either lost their jobs or had to take pay cuts as companies slashed costs amid the pandemic.

“We are seeing a huge fear of missing out among retail investors. There were a lot of investors who missed the rally from the demonetization lows. However, the latest fall has presented an opportunity for these investors,” said Jimeet Modi, founder and chief executive of brokerage Samco Securities. “Lockdowns and working from home have resulted in people having a lot more time compared with pre-covid times, contributing to increased investor interest.”

While some market experts have warned that the current stock valuations are hard to justify and near bubble territory, retail investors seem to be unperturbed by the worries around covid and its fallout on earnings. Experts attributed the more-than-45% surge in stocks since hitting the lows of March to high retail interest as well as excess liquidity.

Retail holding in companies listed on the National Stock Exchange rose to 6.74% by value in the June quarter from 6.45% in the year-ago period, according to data from Prime Infobase data, a part of Prime Database. Overall, retail holding went up in a massive 1,018 NSE-listed firms in just the last quarter. In value terms, retail holding rose 28% to ₹9.16 trillion as of 30 June from the preceding quarter.

Firms that saw the most buying by retail investors in the June quarter were Hindustan Unilever, State Bank of India, Bharti Airtel, Bajaj Finance, Bajaj Finserv and ICICI Bank. Retail investors sold most in HDFC Bank, Britannia Industries, Aurobindo Pharma, Lupin and Infosys in the quarter.

Discount brokerage Zerodha, 5Paisa.com and Samco Securities saw a high volume of retail trading during the period.

Retail brokerage Sharekhan by BNP Paribas saw a 95% jump in trading in May-June against an average of the last six months prior to March. For the brokerage, 60% of new acquisitions were millennials (aged 24 to 40 years) while 30% new clients were from the top three cities of Mumbai, Delhi and Bangalore. Additions from relatively smaller towns were 40%.

Similarly, brokerage Samco Securities said trading volume on its platform has doubled in the June quarter from January to March. Account openings surged 150% from a year ago. Almost 70% of customers are first-time investors in the stock markets, with nearly 65% of the customers in the age band of 21-35.

5Paisa.com, an online brokerage, saw new customers more than double with the customer base predominantly young (25–35 years) coming from tier II and tier III cities and towns.

Most new investors were quietly reading up on equity investing, but were staying on the sidelines due to high valuations, according to Prakarsh Gagdani, CEO, 5paisa.com. But the sharp fall in March and early April allowed many to take the plunge, he said. “For now, I see they are investing in the cash segment. If investors are not leveraging and investing with their own money, the risk is limited,” he said.