Direct Stock Investing: Is It The Right Path For Young Investors?

The Indian capital market has witnessed a significant surge in retail investor participation in recent years, driven by increasing investor awareness, financial inclusion initiatives, rapid digitalisation, and stellar market performance.

The momentum is still on. The latest data – according to Choice Equity Broking - reveal that investor registrations at the National Stock Exchange (NSE) have witnessed remarkable growth – 11 crore registered investors as of January 20, 2025 – recording a 3.6-fold increase in the past five years. The rate of growth was so high in the past five months that the daily new investor registrations have steadily ranged between 47,000 and 73,000. This reveals a marked shift in investor behaviour that favours stock market entry through direct means.

Notably, India has higher potential to develop its capital markets. It has a larger pool of educated middle-class youth. Almost 31 per cent of the 146-crore population belongs to the middle class, and a sizeable section of them is youth. They are digitally empowered, skilled, and have investable surplus. If a significant number of them turn to market investing, it will considerably deepen the domestic market and enhance its volume and strength.

“For young investors, it is often better to invest directly in the market, provided they have the knowledge and expertise to navigate turbulence and maximize returns. Stock selection is a crucial task that requires assessing a company’s true value—whether its stock is undervalued or overvalued—by analyzing factors such as past performance, earnings per share, P/E ratio, cash flow, profit growth, order pipeline, and the sector’s prospects and challenges, typically through a close reading of quarterly reports,” says Sunil Bagaria, Director, Choice Equity Broking.

Furthermore, in a globalised world, investors must have a holistic view of the geopolitical situation, monetary policy decisions by major central banks, emerging market trends, and strategic developments that can impact the domestic market.

The past decade has seen a seven-fold jump in investor participation – from 1.65-crore investors as of May 2014 to more than 11 crore investors today. Apart from urban investors, small investors from semi-urban and rural areas are actively participating in wealth creation, reflecting their enormous trust and confidence in economy and capital markets.

“The handsome returns handed out by the stock market are a major reason for this investor enthusiasm. In 2024, the Nifty 50 index delivered a return of 8.8 per cent. The broader index – Nifty 500 – delivered an even more impressive return of 15.2 per cent. More importantly, domestic market has been offering positive returns for the past nine years,” says Bagaria.

However, there are some grey areas. Often new investors are tempted to participate in the complex derivatives market such as futures and options (F&O), which is riskier than plain vanilla equity investment. A recent SEBI report highlights that nine out of ten individual traders in the equity F&O segment had incurred net losses in FY19 and FY22, which hugely discourage them from further market exposure. Fundamentally, it underscores the necessity of having adequate knowledge and training before venturing into market investing. 

“If you are a novice interested only cashing in on the benefits of equity investments and have no plan to pursue stock trading as a career, you can entrust the asset management business to professional managers. For them, mutual funds (MF) are a better investment choice where the assets are handled by professional investment managers and regulated fund houses. It is the best route to participate in the market indirectly.  Else, you can solicit the expert guidance and assistance of SEBI-registered stock brokers to carry out trading activity,” advises Bagaria.

The Systematic Investment Plans (SIPs) of MFs offer the common man an opportunity to reap the benefits even with a contribution as small as Rs 500 a month. Undoubtedly, it is bringing a revolution in India’s investment landscape, which was once largely dominated by conventional instruments such as small savings schemes and physical gold.