Brash, unmoved, unfazed, adventurous and fearless – a new generation of young investors are flocking to the stock markets, thanks to the spread of digital brokerage. They place bold bets, pick up on hiccups in their stride and keep going, thanks to the intoxicating gains they tasted early in their time in the markets. For them stocks and cryptos are ways of making big gains and they don’t care about gaining a deep understanding of what makes a stock or crypto tick. Welcome to the post-pandemic market!
Times are changing ‘
There are great changes going on in the world. The world has been shaken by the pandemic. Central banks have flooded the world with currencies. Debt does not earn anything. So asset prices have skyrocketed and the neighborhood’s new kid on the block, crypto, has made so many people rich beyond imagination. It is a time of upheaval. Digital transformation is shaking the roots of traditional businesses and threatening their very existence. There is a change in progress towards “tomorrow”. And part of that change is the breaking of dominance across the world, across markets, through the media. Everyone has a voice. Everyone has the opportunity to participate. The walls are disappearing. And it also has ominous omens for the stock markets, with a possible shift in the balance of power.
Minorities are increasing and small groups that enjoy majority control are contested in more ways than one. A promising piece of this puzzle is the advent of the young investor. Their entry is seen to shake things up in a way many veterans frown on. But that’s the change. The sooner we adopt it, the better.
An increase, but not yet significant
The new age investor can enter the markets and create a float, but it may take some time for this new class to make a significant difference in the behavior of the market, contrary to what some might have us believe. And that too if this class can hold its nerves, when the tide turns.
A study of the BSE-500 corporate shareholding model over the past 11 quarters reveals that the average stake of shareholders with less than Rs 1 lakh invested in a company increased by 1.25% from 8, 45% in December 2018 to 9.7% in June 2021. And even if the average holdings of promoters have fallen slightly, other institutional and wealthy individuals hold around 36% of these companies. So even though smaller investors may have increased their stakes in the business, they may still have a long way to go to make a significant difference.
In numbers, however, the retail brigade is gaining momentum. For example, the average number of shareholders added by a BSE-500 company is 100,000 over 10 quarters.
The trend of increasing retail participation is also evident in demat account additions, with around 35.6 lakh accounts added since March 2020.
But even data on shareholdings, based on demat accounts, shows that the share of non-institutional stakeholders improved only 2.4% compared to the increase in holdings of foreign portfolio investors and other institutional investors such as alternative investment funds (AIFs).
Interestingly, NSE’s retail turnover data does not show a marked shift in favor of non-institutions. A review of data for February 2020 compared to September 2021 does not reveal an increase in revenue share, although total revenue has surely increased by 60% since then.
So while there has been a significant increase in the participation of retailers in the markets, it is not yet enough to shake things up.
The future will decide
Can Next Generation Investors Make a Significant Difference in the Future? It’s a billion dollar question. It’s a bit like asking: where is the market going? While many veterans are worried about valuations and anticipating a correction in the markets, not just because of a likely drop, there is some interesting tidbit of history that may give pause.
We looked at the April 2003 Nifty and plotted it with the trend from March 2020. What we found was that the index produced a better return of 108% in this race versus 91% in 2003, over 19 months. But if you project a similar trend from current levels to how things went between 2004 and 2009, you could put the Nifty at close to 60,000 in 5 years. And even if you consider the index level after the top-out and correction through 2009, you would end up at an index level of around 29,000, which is 60% higher than current levels. And if you hope to peak in about 3-4 years, you could be up over 200% from current levels.
If the new kids in the neighborhood have such a great bull run to play, you can bet they’ll make a big difference in a few years.
So while newbies may not have the firepower to rock the markets today, don’t cancel them in the future.
First publication: STI