These Are Exciting Times But Don’t Get Led On

Anjali Adlakha, a 27-year-old MBA student based in Gurgaon, believes the future lies in green energy companies, given the global push for zero emissions and a sustainable future. Ashish Siddhuja, a 20-year-old Bachelor of Business Administration student from Nagpur, wants to learn the tricks of trading early on to be able to handle the assets he hopes to inherit in the future.

With social distancing becoming a norm, the younger generation has naturally adapted to a digital life. While some are sticking to online games, others are finding that navigating the stock market is no less thrilling. A fantasy realm inhabited by real-life rock stars of the financial world, complete with enigmatic alleys where shady scamsters lurk, the stock market provides them the thrill of chasing real money.

No wonder the stock market has become a perfectly gamified ecosystem for youngsters who want to learn and earn, while having fun. Adding excitement to the mix are discount brokerages with innovations typical to online shopping sites and never seen before in the investment sector.

Adlakha and Siddhuja are among a growing tribe of Gen-Z and millennial investors, who are intrigued by the bull run in the stock market, but the gamification of their sub-conscious being seen currently can be a dangerous trend. While some of the millennials we spoke to claim to be making informed decisions, experts are worried about where this trend will lead those going in blindly.

“A lot of first-time young investors have entered the stock market in the last couple of years. Since the market has been in a bull run, the going is good. However, their behaviour needs to be seen when there is a reversal. What is worrying is the fact that several of them are doing day trading, as against long-term investing. More worrying is their participation in the F&O (futures and options) segment, the risks of which they may not fully understand,” says Pranav Haldea, managing director at PRIME Database Group.  

Let’s explore what’s attracting the Gen-Z to the markets, the learnings on the way and what they should watch out for to ensure they don’t burn their fingers.

The Lure Of The Stock Market

For the better part of 2021, the Indian stock market has moved from strength to strength. So, when the Nifty index touched the 18,000 mark on October 11, it came as no big surprise.

The fact that the market is in a bull run and the rewards are flowing in fast and furious is attracting more people to the market. In the June quarter, an average of 2.45 million demat accounts were opened per month, according to Securities and Exchange Board of India chief Ajay Tyagi. On an average, about 1 million new demat accounts were opened per month in FY21. “India has the largest population of 20- and 30-year-olds, so there is a lot of activity in terms of new user additions,” says Nithin Kamath, founder and CEO of discount brokerage Zerodha.

“The enabler has been the rising stock markets. Our new user addition has always been a mirror image of the Nifty Midcap index. So, every time the market goes up, the new user addition goes up, and vice-versa. I think the only time there was a mismatch was in March-April 2020. The user addition went up even though the markets were down,” says Kamath.

Young investors are swarming social media platforms that engage on the fundamental and technical aspects of stock investing. Reddit, Discord and Sharechat are attracting young minds, the way MTV and ESPN did in the ’90s.

With smaller kitties and lower liabilities and household expenses, the stock market seems to be the perfect landing place for them. Given a chance, Siddhuja would have invested in real estate, but with small savings he couldn’t afford to do so. “The stock market accommodates investors of all sizes and acumen. One can start investing even with Rs 1,000,” he says.

Access To Information: The younger lot has a huge information advantage compared with the earlier generations. “Investing in the stock market has become accessible and easy now as there’s a proliferation of trading apps and information is also freely and readily available to retail investors, unlike earlier,” says Haldea.

Besides, a whole lot of YouTube and other social media channels specifically cater to market investors. Siddhuja first got encouraged to explore the stock market after he chanced upon some stocks-related YouTube channels while content-snacking during the different phases of the lockdown. The web series, Scam 1992: The Harshad Mehta Story, released in October 2020, attracted him further. He finally took the plunge in June 2021 when he opened a demat account.

The 20-somethings are well-versed with the market tactics of business magnates like Dhirubhai Ambani and Rakesh Jhunjhunwala, the white-collar crimes of Harshad Mehta and Ketan Parekh, and the successes of Warren Buffett and Chris Gardner. Numerous web series and movies based on financial scams and successes—Scam 1992, Billions, The Big Bull, besides Guru, The Pursuit of Happyness and The Wolf of Wall Street, to name a few—have made it to mainstream entertainment in the past few decades.

Popular entertainment coupled with the marketing communications of companies specifically aimed to attract buyers, are giving young minds food for thought.

“I tell young investors that if there is an industry you like or follow, then it makes sense to extend that to following up on a bunch of companies in the industry or sector you like, and then make an informed decision. If not, then of course mutual funds are the best options,” says Kamath.  

Before Adlakha started dabbling in equities, she started scanning financial dailies and YouTube channels to understand the nuances of stock investment and the potential of various sectors. Climate change and stress on green energy was the most potent investment theme she found and, thus, poured her savings into clean and green energy companies. Besides buying stocks directly, she also invests through exchange-traded funds (ETFs).

Ease Of Transaction: Among the key factors that have helped increase retail participation are ease of access and smooth transactions.

The app economy has made investing in the stock market simple. “Within the broking ecosystem, those who have better products and a simple interface are getting more traction. This is an audience that cares about user experience more than the older generation did,” says Kamath.

Mobile apps, including Robinhood, Zerodha, Groww and Upstocks, not only offer the ease of making money from the comfort of one’s couch but also provide easy-to-understand data through lucid charts, graphs, articles and blogs. “The young investors are used to education, transactions and entertainment from their mobile phones. Stock trading apps provide all three on the same platform,” says Arnav Ghosh, an expert on emerging tech and immersive platforms of virtual reality and near-field technology.

Parents And Peers: Unlike earlier, when the elders of the family bought insurance policies in the name of children coming of age, some of the new-age parents believe in gifting shares and opening demat accounts for them.

Sunil Singh Dahiya, a businessman from Delhi, has introduced his soon-to-be-18 son to the basic concepts of the share market and plans to gift him a few shares on his birthday. “Next year, my son will turn 18, and I want him to understand the importance of compounding and wealth generation through investment into equities,” he says.

While many parents are still waking up to the importance of teaching their wards the life skill of financial investments, Gen-Z and millennial investors are also influenced by their peers.

Piyush Tekchandani, a 20-year-old undergraduate from Nagpur, who has assiduously taken certificate courses to understand the nuances of the stock market, has taken up trading on a full-time basis. He is going through the rigours of academic training just to obtain a formal graduation degree.

Tekchandani is also becoming a huge influence on his friends and peers, many of whom are now taking baby steps into the stock market.

Siddhuja learnt reading technical charts from “my close friend who is a college drop-out but understands the nuances of chart patterns and moving averages quite well.” He has little knowledge of market fundamentals himself, but invests only in companies that have promising future plans.

Learning is important but information collected from family or peers may not always be dependable. “Peer influence and herd mentality are definitely factors during a bull run. There is an old saying that when stock market discussions start taking place in parties and elevators, it is time to be cautious,” says Haldea.

Learnings On The Way

High Return, High Risk: The younger generation has age on its side, considering that equities give the highest rates of return in the long term, but the high rewards come with high risk.

“Equity investing is a must for everyone and the younger you are when you start, the better it is. However, I would advise young investors to stay away from direct equity, especially from day trading and F&Os. They should come in through mutual funds which hire experts to analyze individual companies, sectors and themes. Direct investment in the stock market is a full-time job and everyone may not be equipped to get it right,” says Haldea.

Ankur Jeswani, a 20-year-old BBA student from Nagpur who is also working as a consultant with a real estate company, sticks to equity mutual funds and ETFs as he does not have the time to learn or research about individual companies.

“My first investment was in March 2021 when I invested Rs 2,000 in a reputed mutual fund scheme that had consistently performed well. Now I am investing through ETFs as they are cheaper and give investors more freedom by eliminating fund managers from the equation,” he says.

Jeswani, who has a self-imposed rule of investing 30 per cent of his salary into equities, prefers ETFs that hold growth and value-based companies.

Adlakha wanted to invest Rs 2 lakh she saved while working for a media company before joining MBA. She decided to invest in the stock market instead of settling for traditional instruments, but with full awareness of the risk equity investing entails. “How much would a fixed deposit earn, 5-6 per cent?” she both asks and answers.

Be Wary Of Information Overload: Most newbie investors, thirsty for knowledge, information, and tips, take to YouTube, blogs, news articles and analysis, besides WhatsApp and Telegram groups. In the absence of structured education or regulations regarding experts touting advice and tips through a plethora of platforms, it is difficult to discern the genuine from the fake, the self-serving traders from the un-biased tutors, and advertorials from editorial content.

Siddhuja learnt this the hard way when he lost around Rs 5,000 after following random advice posted on a Telegram group. Since then, he has vowed to invest only in what he considers ‘safe stocks’ till the time he learns the ropes of trading from sources he knows and trusts.

Siddhuja is unfazed by the short-term losses because he can afford them and wants to learn long-term lessons from these mistakes. “I think of such losses in terms of the tuition fee to acquire practical knowledge,” he says.

“The good thing going for some of the young investors is that they are putting in small amounts in the market. Even if they make mistakes, they are going to do it with small amounts of money... I hope that being in the market is going to teach them lessons,” says Kamath.

Basing decisions on half-baked knowledge without worrying about the outcome could be dangerous. After all, unlike online games, playing with the stock market involves real money and can put your savings on the line.

“A lot of people come to the market trying to make large short-term returns, but the idea should be to make more sustainable returns over a longer period of time,” says Kamath.

The Caveat Emptor

The millennials have entered a buoyant market that is recording newer highs every week. In such a scenario, it is easy to get swayed by optimism riding on over-confidence. Moreover, shallow knowledge about companies and weak understanding of fundamentals together with youthful enthusiasm may spell disaster in the future.

“Right now, we are probably overvalued as a market and we are pricing the future almost to perfection. Markets can’t continue to go up like this. So, people should be putting small amounts of money consistently in the market over a longer period of time, so that even if there are drawdowns, they get a better average,” says Kamath.

When perceptions rather than fundamentals are a guide to decisions, a financial institution starts resembling a gambling den. To avoid that, investors would need to control their greed and set an expectation for returns in keeping with their goals. “Young investors must book profits. Profits on paper and profits in the bank account are two different things. There should also be clarity on returns expectation and what their short- and long-term goals about the use of the money are. Excessive greed can easily land you in trouble,” says Haldea.

Indian millennials, nudged by the pandemic, aided by technology and assisted by democratization of information have taken the plunge into the tricky domain of the stock market. The stumbling blocks they encounter may be indicative of the inefficiencies in the system, but may also be lessons in the long term, making them better with every trade they execute.

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Fast Expansion

The increase in the number of demat accounts in the past 18 months has been phenomenal.

• Journey till 1 crore accounts: 15 years
• From 1 crore and 2 crore: 4.4 years
• From 2.12 crore to 4.64 crore: 18 months*

*Between March 31, 2020 and September 30, 2021

Source: CDSL, NSDL

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Dos

1) Compare the brokerage plans of stock trading platforms before opening a demat account in one of them

2) The stock market ignores the past and rewards future growth. So, invest in companies that have a promising future

3) Compare shares based on key financial metrics such as revenue, profit, Ebitda (earnings before interest, tax, depreciation and amortization), book value, earning yields, return on equity (RoE), and leverage ratio

4) Avoid comparing apples with oranges. So, do a comparison within the same sector as what is good for one sector may not be so for another. For instance, utilities and mining companies have low RoE as compared to software or online retailing companies

5) Try to balance your portfolio by having a mix of different sectors. This will help you hedge against downturns of sectoral cycles

Don’ts

1) There is a difference between a good company and a good stock. Do not buy a company whose share prices have already moved up quite high

2) Don’t jump directly into equity trading or investment. Invest only after doing a comprehensive assessment of a company’s financials

3) Do not trust ‘gurus’ unless you are aware of the success rates of their own financial portfolios

4) If you have limited knowledge about the financials or technicals of stocks, then do not invest directly into equities. Invest through mutual funds or ETFs instead

5)  Do not over-indulge. Follow a disciplined approach by allocating a fixed percentage of your income for the purpose

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