Ajitansh Kar, Gurgaon, 11th September 2022
Only a handful of Indians believe in investing in equities or stocks. To be more specific, only about 3% Indians regularly invest in the stock markets through buying of equity shares of companies and units of mutual fund schemes. This number pales in comparison with other countries, such as, USA (55%), UK (33%), and China (13%). In these countries, the retail investors participating in the transaction of equities are much higher. What could be the reason for low participation by India’s retail investors? The answer, perhaps, lies in the fact that the Indian stock markets have a very rich history of scams and frauds, which has created fear in the minds of people and has made them hesitant towards allocating a part of their capital towards stocks and other deemed to be risky financial instruments.
The markets are considered to be one of the most efficient systems in the world, and generally move in different cycles of bull (a phase of significant growth in returns generated) and bear (a phase of negative return generation) phases that lead to volatile movements in the stock prices. Such fluctuations drive the greed in the human mind and makes people come to the markets during roaring bull phases. Generally, people who start investing in the markets during the bull phase make a killing as the price of most of the stocks rise during this phase. Most of them do not give importance to learning and understanding about how things work and blindly put their money in any company without checking its history or fundamentals. When the market tanks, bad quality stocks are the ones which take the hit first and the greedy investors lose most of what they had earned during the bull phase. Due to this, all retail investors lose their confidence and many stop investing in the stock markets. This is one of the primary reasons why the stock markets are considered a taboo in India.
The other important factor that contributes to people being afraid of investing in equities in India are the several frauds and scams in the stock markets in the past. We are all aware of the Harshad Mehta scam of 1992 and the Ketan Parekh scam of 2001. Majority of the Indian public was again very gullible during those times and lost huge sums of money due to their lack of awareness and lack of interest to learn about the basics of the stock markets.
On the other hand, many smart investors have made huge sums of money by investing in equities. There are many legends of the Indian stock markets, such as, Late Rakesh Jhunjhunwala, Vijay Kedia, Ramesh Damani, Radhakishan Damani, and Ashish Dhawan who have spent decades of their lives researching and learning about stock markets and trying to understand the principles behind their working. Over the years, they have excelled in this field and have made billions of rupees.
Retail investors should always be careful while investing in any asset class and do proper research before investing. This would decrease the chances of their losing money and would assist them in creating wealth for the future. Other alternatives for those who do not have the time to think and research about different assets such as stocks, bonds, etc., Is to hire a professional money manager or to invest in products such as mutual funds, index funds, PPF, etc. If retail investors exercise caution and do some research or take the help of experts, the chances of stock markets becoming shock markets would be minimal.
