The coronavirus stock market meltdown in March gave Indian millennials a big opportunity to start investing in the stock market.
India’s benchmark stock indexes, the Nifty 50 and the S&P BSE Sensex, fell 23.25% and 25.74%, respectively, in the second quarter. Top Indian stock brokerages reported a surge in interest from younger, first-time investors.
Central Depository Services Limited (CDSL), India’s largest trading account depository, reported that clients opened 5 million new demat accounts in the first nine months of 2020—half the number of accounts opened over the last five years.
What’s driving this surge of interest in stock markets? More importantly, what should Indian millennials know before they take the plunge and dive into the stock market?
Technology Is Enabling Stock Market Access
Technology is helping Indian youth access the stock markets like never, Indian brokerage companies say.
Mobile Trading Apps Are Key
The availability of mobile trading apps that charge low or even zero commission on trades has opened the gates to the stock market.
India’s top two stock brokerage companies, Zerodha and Upstox, which also follow the discount-brokerage model of offering highly reduced commission, saw a sharp spike in investors up to the age of 30 conduct trades as lockdown-induced work-from-home gave millennials time to trade.
Zerodha saw investors in the age group of 20-30 increase to 69% of its total investors, from 50-55% pre-COVID. The average age of Upstox’s customers dropped to 29 between April to August of this year, compared to an average of 31 years old before.
Dhiraj Relli of HDFC Securities, the brokerage arm of India’s largest bank by clients, says the firm has only very recently started seeing millennials opening new accounts.
“We’ve seen multiple new accounts in the last six months, the average age has fallen, and nearly 70% of the new acquisition is of those less than 30 years old,” says Relli.
5paisa.com, a subsidiary of 25-year old India Infoline Finance Limited, saw investors aged 18 to 35 climb to 81%, compared to 74% pre-COVID.
Cheap Data and Smartphones Enabling Access
Access to mobile phones and low data costs are among the key reasons cited by top stock brokerage companies on what’s spurring millennials to experiment with stock market investing during the pandemic.
India offered the cheapest mobile data rates in the world in 2020, with an average cost of $0.09 for 1GB data, according to the Worldwide Mobile Data Pricing Report by UK-based cable.co.uk.
The country has over 450 million smartphone users and is the fastest growing app market in the world, according to a joint report by the India Cellular and Electronics Association and KPMG India released in July.
Plenty of this growth in trading is also occurring in Tier-II and Tier-III cities. For example, Upstox saw 80% of its total customer base from cities such as Nashik, Jaipur, Guntur, Patna, Kannur, Tiruvallur & Nainital among others.
Tier II cities in India are cities that have a population of 50,000 to 99,999, and Tier-III cities have average populations of 20,000 to 49,999.
A Focus on Learning Has Boosted Participation
Stock brokerage companies say that it’s not just access thanks to technology, but also that Indian millennials are much more savvy about their finances compared to previous generations. This means younger millennials are making more informed investing decisions, and buying opportunities like the March sell-off is only one example.
Prakarsh Gagdani, CEO of 5paisa.com, says India’s millennials have learnt to protect their investments, which is a good thing because that will allow them to stay invested in equities unlike in earlier decades when new investors would leave the market after losing money.
“We saw many new investors waiting to invest until markets fell sharply, rather than when they were at their highs. Now, when markets have moved up significantly, they are taking calculated risks,” says Gagdani.
India’s biggest stock brokerage company, Zerodha, offers its users stock market tutorials and financial lessons under its initiative Zerodha Varsity. It saw pageviews double during the pandemic, to an average of 85,000 per day from a daily average of 45,000 before.
Progressive Regulation Made Stock Market Access Easier
Brokerages credit the market regulator Securities and Exchange Board of India (SEBI) for promptly addressing the massive confusion a sudden lockdown in India caused for the stock exchanges.
From the start of the year, SEBI has been working actively towards regulations to ease market participation, which many stock brokerage companies feel has acted as a catalyst for millennials to invest in the markets as the coronavirus crisis hit.
For example, when the pandemic broke out in March, SEBI introduced four key regulations to ensure orderly trading, effective risk management and price discovery, with an eye toward maintaining market integrity.
In April, SEBI reduced broker turnover fees to 50% of the existing fee structure for the period June 2020 to March 2021, and filing fees on offer documents for public issue, rights issue and buyback of shares. SEBI required brokers to pass on the benefit of lower fees to investors and not maintain higher fees.
The introduction of digitization of the entire know-your-customer (KYC) process is among SEBI’s most progressive regulations of the year that may have helped investors to start quick online accounts.
SEBI made two key changes:
- SEBI eased the KYC process by activating online KYC, which allowed investors to fill their KYC details via the internet. This helped first-time investors who needed to obtain verification, which is mandatory before one starts participating in the stock markets. These investors were able to submit KYC online as opposed to pre-COVID times when they had to physically visit a brokerage company’s office.
- SEBI also enabled the usage of eSign and Digilocker to facilitate investors to submit officially valid documents, which include a person’s proof of identity and proof of address, for the purpose of KYC to the SEBI intermediary’s online or digital platform, app, through e-mail or electronic means.
What Should Indian Millennials Know About Investing in The Stock Market?
Millennials love to invest their energy into activities that give them an instant adrenaline rush and what could be a better place to get this rush than the stock markets that have long been known as arenas for speculation and betting.
For millennials who want to enter the stock market, three key points are worth noting:
Stock Markets Are Volatile
The markets suddenly crashing to sharp lows are bound to interest anyone looking to make quick bucks but investing in the stock markets isn’t a spontaneous but a methodical decision taken keeping in mind its cyclical nature.
Radhika Gupta, the Managing Director and Chief Executive Officer of Edelweiss Asset Management Co., believes India is a very emotional country; we live at extremes. “So it is either achche din aa gaye hain (good days have arrived), let’s put all our money into the market, or everyday is finished.”
This is not a healthy trend, she says, and believes the money management experience can be a lot sturdier with the understanding that markets move up and down and are cyclical in nature.
Relli of HDFC Securities too thinks Indian youngsters, particularly millennials, have less patience and cautions them to learn more to deal with the market volatility.
“After a significant crash in the market in March, markets have been doing well from there. So, that way, this time the new investors who were invested were able to get decent returns. But this is not the DNA of the market. We will never see a secular trend in the market upwards or downwards and volatility is here to stay,” says Relli.
Systematic Investment Helps Long-term Financial Goals
Motilal Oswal, the Managing Director and CEO of Motilal Oswal Financial Services, believes new investors should come to the markets either through systematic investment plans (SIPs) or mutual funds instead of experimenting with direct investing into stocks, which could be risky.
“I don’t think new investors appreciate or understand whether they are investing for a few hours or a few days or a few years. As a result, the average holding period of the stock is coming down. Ideally, it should go up. So, that’s a mistake investors make,” explains Oswal.
Abhinav Angirish, the founder of Invest Online.in, too thinks many times people over invest in the absence of well-defined financial goals and suggests assessing your risk profile before investing.
“It is not necessary to have huge capital to create wealth. Regular small investments can help you to achieve your financial goals,” says Angirish.
Financial Research And Learning Open Doors to Success
Basics of trading through simple online courses to educate oneself and improve trading skills and financial knowledge about the latest market movements is essential reading for beginners to understand what’s happening in the market on a day-to-day basis and invest wisely believes Ravi Kumar, the co-founder and CEO of Upstox.
He suggests first-time investors should bear in mind some key aspects of stock trading:
- Consider starting with paper trading.
- Fine-tuning one’s stock investing strategy before committing money.
- Use stop-loss orders to maintain financial discipline. A stop-loss order allows investors to place orders to buy or sell a specific stock once the stock reaches a certain price, to limit losses.
Gagdani of 5paisa.com also believes that first-time investors need to educate themselves via dedicated education platforms with micro-learning modules to ensure awareness of every basic and advanced strategy about stock markets.
“We advise millennials not to take high-leveraged positions, not invest in unknown illiquid stocks without solid research, and carefully invest in derivatives segments after acquiring thorough knowledge,” says Gagdani.
Angel Broking’s Vinay Agrawal too stresses on the need to research and most of all, patience for a successful stint at the markets.
He advises continued learning about businesses, learning from great investors, and learning from your own mistakes as markets are always different and companies are constantly changing.
“It’s important to think long-term and focus on investing consistently over a long period of time that will ensure that we have enough when needed,” says Agrawal.
Bottom Line
A surge of 5 million new demat accounts in just about 9 months reflects India’s trust in the stock markets to help them generate wealth.
The Indian economy is relatively young with 62.5% of its population in the age group of 15-59 years and this demographic dividend can help stock markets expand.
Following some best practices such as getting external help, self-learning and actually experimenting could motivate India’s millennials to make the best of their stock market experience and also contribute to spurring the country’s economic growth.
