Quick bucks lift retail investors’ risk appetite4 min read . Updated: 15 Sep 2020, 01:16 PM IST
The appetite for risk is up manifold in the past six months with the average age of new investors falling to 29 years
Millions of young Indians have started dabbling in stocks as a sharp rally since end-March has lifted the confidence of many in their stock-picking abilities.
The appetite for risk has also risen manifold over the past six months with the average age of new investors falling to as low as 29 years from a typical 31-35 years range.
Besides the fear-of-missing-out (FOMO) on the opportunity, analysts attribute this to a variety of reasons such as a stagnating real estate sector, falling interest rates, the liquid nature of stock investments and low-cost internet data.
Data sourced from the Securities and Exchange Board of India (Sebi) showed investors opened a record 4.09 million demat accounts from March to July, comprising nearly 80% of the five million new accounts opened in 2020 so far. In June and July, 1 and 1.1 million new demat accounts were opened, respectively, taking the total number of such accounts to 44.3 million.
“Being a mobile-first trading platform and a choice of millennials, on-boarding of customers in the same period has seen a 23% growth in the absolute number of customers below age 30 during April-August versus November 2019 - March 2020," said Ravi Kumar, co-founder and CEO, Upstox, an online discount brokerage firm.
Currently, almost 75% of the company’s total customer base is below 35. Over 80% of the total customer base acquired by the company are from tier-II and tier-III cities such as Nashik, Jaipur, Guntur, Patna, Kannur, Tiruvallur and Nainital.
“We believe our millennial customers are capable of making mature and well-informed decisions, drawing from the wide pool of information available around us. While some investors may have come with the objective of making quick money through trading in the rising market momentum, the number of serious investors this time with the medium-to-long-term horizon is significant, which signals the maturity of retail equity investors in India," Kumar added.
Discount brokerage Samco Securities saw new account openings surge 150% from a year ago with almost 70% of customers being first-time investors in stock markets and nearly 65% in the age band of 21-35.
“Younger investors are new to markets and generally more ambitious. They believe their ambition to create larger wealth would not be satisfied by fixed income instruments and are, therefore, willing to take higher risk for higher return and invest in stock markets. This trend is likely to persist unless people see a large drawdown on investments," said Jimeet Modi, the founder and CEO of Samco Group.
“As long as investors are investing in good quality businesses and have reasonable return expectations, they should be fine. They should stay away from multi-bagger ‘stories’, high debt names, penny stocks and in general, the lure of extremely high returns. We believe an investor with a 15% return expectation is likely to do much better than an investor with 50% return expectation," he added.
Others concur. “With larger financial inclusion, we think this trend is set to continue and we foresee significant growth in retail participation," said Nikhil Kamath, co-founder and chief investment officer, True Beacon and Zerodha.
With the increase in retail participation in stock markets, there is a rise in new women investors, too. For instance, Zerodha, which added 1.37 million clients since the outbreak of covid-19 in India, saw 235,000 new women investors in the period. The discount online brokerage firm has a total of 560,000 women clients on the platform at an average age of 33 years.
The rising influence of retail investors can perhaps be derived from the fact that small-cap stocks have outperformed benchmark indices post the covid-19 outbreak. Small-cap stocks are typically seen as riskier bets, compared to mid- and large-cap firms, and prone to extreme price volatility, especially in times of economic uncertainties. Traditionally, due to low pricing, small-cap firms offer more frequent and better entry points, especially for retail investors.
From the lows of March, the BSE SmallCap index rallied 64%, outpacing the Sensex’s 50% gain. Penny stocks—considered the favourite among retail investors—have created multi-baggers during the period. Around 163 penny stocks have more than doubled since March. One of them, GBL Industries Ltd, rose as much as 1,105%.
“There is a major shift in risk aversion as high returns in the last few months have boosted confidence of their stock-picking skills," said Amol Joshi, the founder of Plan Rupee Investment Services, a financial planning firm.
He said besides competing asset classes being at a historical low, easy access to trading websites/apps, easy KYC process and cheap internet are also encouraging new investors to participate in stock trading, which may not have been considered by these young investors for various reasons.
“However, in case a new investor’s portfolio isn’t diversified as much as a seasoned investor, he may not return to the stock markets once returns start to dwindle, which is bound to happen sometime as markets do not follow one-way up route always," Joshi added.