Many of India’s new band of retail investors hail from smaller towns. Does English act as an impediment?
The solution to the language hurdle is, however, complex. Market information is usually time-sensitive and taking time to translate it might lead to the information losing its relevance.
Binoy Kumar Singh, 68, a retired government employee from Kolkata, West Bengal, has been dabbling in India’s stock market for many years. Yet, he still faces a curious disadvantage on a regular basis. Singh’s grasp of the English language is a bit tenuous. While a limited understanding was sufficient to navigate his mid-level government job, the stock market is a different beast altogether.
More than luck, it is English that has made him miss out on several market opportunities, believes Singh. “It has been impacting my investment decisions. Important (financial and regulatory) information should be available in at least one additional language apart from English," he said. “After enrolling in a few programmes (organized) by brokers in a local language, things are gradually becoming clearer and I am at least not making losses anymore," Singh added.
Singh is not alone. Many retail investors often find it difficult to surmount the language barrier while trying to make sense of a litany of corporate announcements, regulatory changes and IPO (initial public offering) prospectuses. Last year, many small-time investors were caught unawares when market regulator—the Securities and Exchange Board of India (Sebi)—introduced changes to margin trading.
Without an adequate or timely understanding of important disclosures, which are often packaged in dense English, some retail investors end up trading blindly. It also compels them to rely on “hot tips" or hearsay from the so-called stock ‘advisers’. And they end up burning their fingers with a bad investment.
The case of a crisis-hit stock like that of Dewan Housing Finance Corp. Ltd (DHFL) is, for instance, instructive. Just before the shares of DHFL stopped trading on the exchanges on 14 June, retail investors were busy grabbing it with both hands. The stock had started to frequently hit the upper circuit since 13 November 2020—shooting up from ₹15.6 a share to ₹41.7 within just 19 days (a gain of 167%). But soon, the rally fizzled out and the stock hit the lower circuit for seven straight sessions. By the end of the March 2021 quarter, retail investors were left holding a majority stake in DHFL. By then, institutional investors had silently exited.
The fiasco compelled Sebi to make regulatory changes in the disclosure norms for firms that are undergoing a bankruptcy resolution process at the National Company Law Tribunal (NCLT). For those who had lost money, however, it was too late.
India’s capital markets have always been an English-dominated territory. What makes 2021 different is the sudden surge in new retail investors, many of whom hail from smaller towns and states that did not previously have a substantial market footprint. Investors from states like Assam, Telangana and Odisha have flooded the capital markets post-April 2020. While stock market trading is inherently risky, making decisions without complete understanding it is even riskier.
“It is imperative to add a local touch. Personalization is the key," said Prakarsh Gagdani, chief executive officer of 5Paisa, an online brokerage firm. “Considering that there is now (a greater) focus on allowing equity market access to (a) large population across smaller locations in India, regulatory and exchange information in regional languages will help." Investors, especially from smaller towns, want to receive content and communication in their preferred language, he added.
Apart from the traditional capital market participants—Mumbai, Delhi, Kolkata and Bengaluru—investors from smaller tier-2 and tier-3 cities like Nashik, Jaipur, Guntur, Patna, Kannur, Visakhapatnam and Nainital are increasingly betting their money on equities.
According to BSE data, smaller states such as Arunachal Pradesh, Assam and Telangana have witnessed the highest increase in registered investors over the past year. New investors in these states have risen by 90-181% in the year ending July 2021.
“Lower (interest) rate in other saving avenues has led to (a) greater interest from individuals in the stock market," Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, wrote in a note on 22 June.
Indian investors opened a record 14.2 million new demat accounts in FY21, nearly three times the figure in the previous fiscal. The three-year average prior to last year’s massive influx: 4.3 million. In the first four months of FY22, an average of 2.4 new million demat accounts have been opened each month, with a record 2.7 million accounts in July indicating that investors continue to shift their savings from traditional instruments such as gold, real estate and bank deposits to alternatives such as stocks.
With new investors flooding in from smaller towns, the need to include Hindi and other vernacular languages as a medium of communication while disbursing important market-related information becomes even more crucial. Otherwise, language could potentially create an artificial barrier for many Indians who wish to trade stocks.
According to Ajay Menon, chief executive officer, broking and distribution at Motilal Oswal Financial Services, as digitization has led to a spurt of new investors, it becomes imperative to use regional or vernacular languages.
Solution is complex
The solution to the language hurdle is complex, time-consuming and expensive, said one market expert requesting anonymity. Some of the market information is time-sensitive, for instance, and taking time to translate it into different languages might lead to the information losing its relevance.
Also, when it comes to IPOs, translating the bulky prospectus into even one other language will take an inordinate amount of time. “But Sebi regulations mandate a company to announce (the) IPO within a certain time period after the IPO proposal is approved," the person cited above said.
In 2016, Sebi had directed all the intermediaries in the securities market to start communicating with investors in vernacular languages. Sebi had asked intermediaries to begin by translating documents related to the rights and obligations of brokers, disclosure on risks, and also the ‘do’s and don’ts’ of stock trading into 15 Indian languages.
However, not much progress has been made on this front apart from the availability of some basic information on investor awareness in multiple languages. Emails sent to Sebi requesting comment went unanswered.
A spokesperson from the National Stock Exchange said, “While at present there is no mandate to issuers to publish information such as (the) prospectus, analysts’ reports, etc., in vernacular languages, Sebi does mandate that issuers publish (the) announcement of filing (the) draft offer document with Sebi in one English, one Hindi and one regional language national daily newspaper with a wide circulation. Given the quantum of information (that is) required to be disclosed in any offer document, the task of presenting this information in more than one language will have its own set of challenges. Some of the documents are about 1,000 pages."
Bridging the gap
Despite the seeming difficulty of the task at hand, translation into multiple languages is valuable, and technology can make this quite feasible, said Jayanth R. Varma, a professor of finance at the Indian Institute of Management (IIM), Ahmedabad. Varma is also a member of the monetary policy committee of the Reserve Bank of India (RBI).
According to Varma, investors themselves can use technology effectively. It is quite common even for finance professionals to use tools like Google Translate to read financial statements and announcements of foreign issuers.
“In my own experience, this works quite well…because, in finance, numbers are typically more important than the text, and the Hindu-Arabic numerals are now near-universal. Issuers too can leverage technology: corporate websites of (most) global companies are now usually available in multiple languages," he said.
Globally, several countries with multi-lingual populations have managed to bridge the gap to an extent. In the US, the Consumer Financial Protection Bureau has a major initiative to help multilingual communities and newcomers. It covers Spanish as well as Asian languages. The bureau has published a glossary of financial terms in English-Spanish.
The advantage of such aa move is that all entities begin to use the same Spanish word or phrase to translate a certain English word, thereby avoiding unnecessary confusion. Last year, the Taiwan Stock Exchange Corporation also initiated steps to develop a bilingual capital market by publishing information in English and Chinese.
The inclusion of more languages will only make the stock markets more accessible and investors less vulnerable. In the absence of any concerted official thrust, some India brokerage firms have stepped up. A few companies have even roped in social media influencers to explain IPOs and stock-related information in Hindi, Marathi and Gujarati.
“Many investors struggle due to the language barrier, and hence, they seek advice from friends, family, or peers. If these details are drafted in easy-to-understand local languages, users might feel empowered to make their own informed decisions," 5Paisa’s Gagdani said. “We and other content creators are already providing videos in vernacular languages," he added.
In the first quarter of FY22, 5Paisa, which is a discount stockbroker, had aggressive client accretion, with 84% of incremental clients coming in from tier-II cities and below (78% of the customers were aged below 35 years). With a focus on low-ticket size customers, 5Paisa recently launched a new version of its Android app in eight languages. During the soft launch, it was observed that about 20% of the app’s users adopted a non-English version within just a month.
The website of Motilal Oswal Financial Services is also available in two other languages (Gujarati and Tamil) besides English and Hindi. “Our educational initiatives are also undertaken in multiple languages. Using this approach helps us build connections with our clients and also makes sure that our clients are well aware of the investment aspects and transaction cycles," Menon said.
According to Jaideep Arora, chief executive officer, Sharekhan by BNP Paribas, even with the presence of local relationship managers and access to research in multiple languages, there is still some way to go in making capital markets more accessible to retail investors. “Seamless, efficient and error-free translations that can adapt to platforms and provide localized content to customers is required. But this demand is still in its nascent stage and service providers will need time to provide the correct solution to customers," he said.
While the translation of market documents into a slew of mother tongues might indeed take off at some point, IIM-Ahemdabad’s Varma says that this in itself will not entirely prevent retail investors from taking undue risks. “Most of those who fell for scams and market manipulation were, I think, quite proficient in English. It is not that they did not know about the risks, but that they ignored it."
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