Enthusiastic Millennial Traders Fuel India’s Stock Market

“Retail” ownership and trading of stocks has increased noticeably in India over the past year. While Millennials are more tech-savvy and willing to take risks, the functioning and sustainable growth of the national equity market are rigorously regulated and remain less volatile than most offshore investment realities.

A New Investor Profile Is Growing in Importance

India’s immense young population is gaining its recognition gradually but surely – from professional fields to urban trends and rural (online) social visibility. Recent reports raise the question of the Millennials' importance to the country’s financial performance, with millions turning to the stock market in the past year.

Considerable numbers of young Indians – mostly established professionals – have been investing more time and money in national and foreign stock trading. Reportedly also an after-effect of pandemic slow-down and job market difficulties, the hopes and dreams of many Millennial entry- level traders have been driven by urban legends and news of big wins on foreign stock markets (e.g. the GME chronicle from the US).

Despite any attempts to present it as a regular occupation, it can still be considered closer to online gambling than a methodically backed investment. Websites like PureWin have seen a rise in popularity lately. Fortunately, stock trading in India is largely regulated, with Federal-level rules and mechanisms created to avoid too much risk and stock manipulation.

A Noticeable Growth in Investor Accounts

Officially, Indian investor accounts rose by a record 10.4 million in 2020 alone, as confirmed by the nation’s two main depositories. Personal Demat accounts have been accumulating stocks, bonds and mutual funds, bringing overall “retail” ownership of NSE-listed companies to 9% by the end of 2020.

While stocks continue to make up a relatively limited share of desi household savings, the sheer number of new accounts tells the story of an unprecedented interest in stock markets. Some financial intermediaries have revealed that more than two-thirds of their new customers had never traded before.

Surveys have shown that young professionals have begun investing their savings in Indian equity and mutual funds, blue-chip stocks and other popular company shares. The stock market has also become an issue of generational dialogue between Millennials and their families. More importantly, the investing boom has brought many new users to the markets, including those outside of the biggest cities (the so-called Tier 2 and Tier 3 cities, behind Mumbai and New Delhi by size and visibility).

This trend is namely attributed to the rising importance of Millennials in the markets, as rural and working class savings traditionally go towards gold and property as forms of insurance and retirement plans. Young Indians are also more risk-prone and technologically aware and make better use of digital solutions.

Still, just below 4% of all Indians invest in equities – compared to China’s almost 13%, while more than half of all Americans own stock individually or through mutual funds. But China is also a potential model for India’s upcoming development. With technology bringing a host of low-cost trading Apps to wider public recognition, many Millennials have been following related social media channels and influencer blogs on YouTube, Telegram and Twitter. Country-wide internet access and fintech models have also provided access to cheaper credit.

The Role of SEBI Oversight

Stepping in as an important regulator of India’s financial market stability, the Securities and Exchange Board of India (SEBI) is focusing on safeguarding retail investors and companies from“amateur” mistakes and potential abuse. Measures range from financial literacy and transparency campaigns to broker regulation and general market system requirements.

Warning systems include the Graded surveillance measure (GSM), market-wide position limits, Intraday filters and stock-lending limitations (SLB mechanism). Regulations prevent extreme price swings and stock manipulation, including by requiring financial intermediaries to abide by a series of rules and NSE procedures that largely discourage hedge funds’ existence.