Indian stock market sees a surge in retail investors since 2020. Millions of new demat accounts opened, democratizing wealth creation. Investors should be financially aware and seek advice. Innovation in financial services grows, but beware of frauds. Diversify portfolios and avoid leverage. Long-term wealth creation is emphasized. Watch valuations and consider ETFs. Navigate market volatility with a long-term perspective.
, became a catalyst for change as millions of new demat accounts were opened across the country.
From just 4.09 crore accounts in March 2020 to an impressive 10 crore by August 2022,
retail investors have emerged as a driving force in the market, now accounting for over half of daily transactions.
This shift has democratized wealth creation, allowing a broader spectrum of Indians to participate in and benefit from the nation’s economic growth through the capital markets.
As India undergoes this transformation, Indians are going to experience massive wealth creation.
Many investors had little knowledge about market trends and latest developments. They often blindly took advice from friends and family for making investments decisions in the stock market. Many of them lost their hard-earned money due to such ill-informed investment decisions. Investments without proper knowledge of the market conditions can lead to heavy losses in the stock market. Therefore, it is better for the retail investors to acquire a good understanding of investing and financial markets.
Individuals should consult financial advisors to receive guidance on structuring their savings, which could assist in managing and potentially increasing their wealth over time.
With an increase in retail investors, innovation in financial services has grown, particularly in the fintech space. Online trading platforms, robo-advisors, and investment apps have proliferated, offering tailoring solutions to meet their needs. These innovations have made investing more accessible, efficient, and personalized, boosting participation among younger, tech-savvy investors. However, users should fully understand the service before using it.It is important that investors stay wary of digital frauds that promise over-the-top returns too soon, these may prove harmful as investors can get ripped off their money.
Retail investors are more susceptible to emotional investing, driven by fear and greed. Market volatility can exacerbate this behaviour, leading to panic selling during downturns and overenthusiastic buying during bull runs. This cyclical behaviour can result in suboptimal investment outcomes and erode long-term wealth. Therefore, it is best to invest in the SIP plans – so that one does not get carried away by the market movements and the investments get averaged out during the highs of the market.
Investors should diversify their portfolios across asset classes like fixed income, equity, precious metals, real estate etc. The portfolios should also be across one asset class. For example, in equity, investors can look at large cap, mid and small cap whereas in fixed income, they can consider, high or low duration funds, corporate bond funds, or high-yielding credit funds. This is recommended because each type of asset class differs in its risk/ return profile, and one must invest basis one’s risk appetite and cash flow patterns and needs and market trends.
Retail investors who use leverage may experience greater losses in addition to potential returns. Unless there is significant market expertise, investing for the long term without using leveraged products carries less risk than trading with leverage.
Sovereign Gold Bonds remained popular after COVID, offering interest and potential capital gains. Digital gold platforms and bank gold savings accounts have made investing in gold more accessible. Global gold prices have surged over the past five years, attracting those seeking capital appreciation.
The future of retail investing in India will likely see a greater emphasis on long-term wealth creation rather than short-term gains. As retail investors become more educated and experienced, they will increasingly adopt strategies that focus on building wealth over time, such as value investing, diversified portfolios, and consistent SIPs.
One must be watchful at what valuation one is investing in equity or any other asset class. If the valuation is stretched- the returns will be sub optimal despite a high return asset class like equity. Valuation examines current value, past valuations, and peer comparisons—key factors for individual investors.
If an investor is looking for diversification, ETFs are a very cost-effective way to invest as the fund management charges are very low and are not dependent on the Fund manager. Today, there is a plethora of ETFs in the market. However, before investing in ETF, one should see the AUM, the management charges, the bid offer spreads and if it fits in your scheme of needs and returns.
In an environment where geopolitical uncertainties are dominating headlines, it is easy to lose sight of the big picture. Yet, historical data offers a powerful reminder - markets maybe volatile in the short term, but they can often emerge stronger over the longer term. Do not let temporary turbulence derail long-term goals.
Systematic investing through SIPs remains a prudent approach. Reacting emotionally to market movements often results in sub-optimal outcomes, while staying the course potentially rewards patient investors.
Remain vigilant against unauthorized brokers and market intermediaries, as they may not be registered with SEBI and could potentially defraud investors. Avoid being influenced by unrealistic incentives or false promises offered by such individuals. Refrain from acting on unsolicited stock tips and recommendations, as these can often be misleading.
Remember, there are no guaranteed returns in the equity markets—anyone claiming otherwise should be treated with caution.
These Funds are often launched for short-term trends. Instead, consider Flexi cap or Multicap Funds, which allow fund managers to invest according to the changing market conditions and are therefore flexible.
1. Industry capacity utilization based on RBI survey data is at a reasonably high level and indicates potential for increase in private capex going forward. Also, continued expansion of the
Production Linked Incentive (PLI) scheme is likely to further increase private investments in targeted sectors.
2. Real Estate remains another strong medium term growth driver especially with a soft interest rate scenario and surplus liquidity in the system which is likely to spur demand for credit.
3. Consumption should increase given the fact that there has been reduction in tax rates for the salaried (urban India) and good rainfall (rural India) in second half of the year.
4. Macro-economic factors in India are extremely favourable – CAD is under control and the rupee has been appreciating as well. This will increase the FPIs to invest in India for a long term.
In a landscape marked by opportunity and risk, discerning investors must take their investment decisions with vigilance, adaptability, and long-term vision.
As India’s growth engine accelerates, the real rewards will favour those who remain informed, cautious of easy promises, and steadfast in their commitment to consistent, prudent investing.
The journey ahead is promising, seize it with wisdom, and let discipline be your greatest ally.
(The author is Chief Investment Officer – IndiaFirst Life Insurance)
(: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
