As young Indians jump into a rising stock market, risks increase Business and Economic News

Nithin Kamath, India’s largest online brokerage director, handles an average of 10 to 12 million orders per day. More and more first-time investors are under the age of 30, making dozens of transactions from mobile to lightning speed.

Young investors like Kamath’s Zerodha Broking Ltd. —Indian Robinhood Markets Inc. known as — they helped bring their stock market to record this year, but many are buying it at a time when risks are increasing.

India’s benchmark S&P BSE Sensex rose more than 20% in the first 10 months of this year, thanks to central bank efforts to pump liquidity into the economy. But it is down almost 8% from October highs, partly because it expects interest rates to rise as economic activity and inflation rise. Globally, stocks have also been volatile amid concerns about the global spread of the omicron variant.

In recent weeks, Goldman Sachs Group Inc. and Nomura Holdings Inc. internal brokerage has reduced expectations for the Indian stock market, highlighting costly valuations. Meanwhile, the meager debut of the nation’s largest initial public offering, thanks to the pioneer of digital payments Paytm, has left many retail investors with losses.

A more reliable market forecast means that small investors can experience large losses in a downturn. But the returns on traditional investments like savings deposits remain low, and they are encouraged to continue pouring money into the shares of millennials in India.

In the eastern city of Udaipur, 35-year-old Dushyant Rathore, who runs a boutique hotel chain with his family, says he has stepped up investment in shares during the pandemic after severe blockades around the world halted the hospitality industry.

Rathore’s stock portfolio is now valued at Rs 11.5 crore ($ 150,000) after doubling in value from March 2020 onwards. Now she’s not backing down, and she’s also encouraging young cousins ​​and other family members to put some of their savings into small shares. staggered numbers.

“This is probably one of the best opportunities for someone to create wealth,” Rathor said. “Even though business is slowly booming now as travel begins again, I plan to keep pace with my investments.”

Since the March 2020 low, when stocks plunged around the world in signs that the coronavirus was spreading worldwide, Sensex India has risen by about 119%, the highest among countries with stock markets worth $ 1 trillion or more.

Some analysts see the reason for caution. Despite recent declines, Sensex’s one-year price-to-earnings ratio is close to 21, compared to the MSCI’s Emerging Markets Index of 12.3, making it a relatively expensive stock in India.

“When people come and tell me that I manage my monthly household expenses in the capital markets, it is worrying,” said Sameer Kaul, managing director of TrustPlutus Wealth India Pvt., which manages nearly Rs 110 billion in assets. “The market is out of sync with the real economy and if people think they can make money as easily as in a casino, it’s a worrying sign.”

Great IPO

Earlier this year, Devashish Pahwa, a 31-year-old entrepreneur in the New Delhi clothing industry, invested about Rs 200,000 from his and his family’s accounts in One 97 Communications Ltd., a Paytm operator. But shares have fallen 39% since it was listed last month due to doubts about the startup’s profitability path. It has had a bigger loss in the last quarter.

Paytm is a well-known name in India and Pahwa says he did not study his finances as well as he usually does before investing. “I haven’t passed the numbers,” Pahwa said. “That was my mistake. But I will do more research for future IPOs. ”

Pahwa believes there will be a market correction. Although he has become more cautious, he has not sold any shares in Paytm or made any profit on his equity investments, which are worth between Rs 350,000 and Rs 400,000. He also says he will buy any company that hopes to do well in the coming years, especially when stocks are falling, which would make it cheaper.

From Vietnam to South Korea, more families are putting money into the stock market, but the pace at which India is adding new investors is unprecedented. Retail investors put Rs 860 trillion this year in the Indian National Stock Exchange’s cash market compared to Rs 512 billion in 2020.

By early 2020, India was adding 400,000 investor accounts every month, according to its market regulators. By 2021, that number has grown to about 2.6 million, about half of New Zealand’s population.

Despite Sensex’s downturn, November was one of the best months for mediation. Zerodha opened nearly 400,000 new investor accounts last month, with competitors such as Angel One and 5paisa.com adding similar numbers.

Young investors don’t have much to lose, Kamath said. “They have a long way to go in the future. You make mistakes, you learn, and you bounce back. ”

Despite the recent decline, there may be room for new investors. Retailing in Indian stocks is low compared to other countries.

Indian households invest 7% of their financial assets in equities compared to 30% of other emerging markets, according to Bloomberg Intelligence analyst Gaurav Patankar. Latin American households own more than 40% of the stock, while the United States has 50%.

“At some point, higher profitable capital will stop, but that will not result in a return to other assets,” said Ashutosh Tikekar, head of global markets at BNP Paribas SA India. “It may slow down the pace at which investors are entering the market, but it will not lead to an exodus.”