Indians are investing in equity markets like never before — and this is just the (late) start

Lata Solanki in Delhi Crime Season 2 pounded sleeping geriatrics to death and decamped with their cash to escape the social prison of her Ghaziabad existence, fund a proposed beauty parlour empire, earn social respect and do ‘something big’. She was misdirected. Nobody tipped her to buy a killer stock. She would have been running a beauty parlour chain, generating annuity incomes and priming for an IPO on the SME Exchange.

But millions of others proved luckier. They were drawn to the Indian capital market through various pulls. How the Bhallas moved into a penthouse after selling some shares. How investor-philanthropists are committing high crores. How Singh Aunty is sending her daughter to a US college after selling family equity. How Thyagarajan Sir’s dividend inflow alone is sufficing after retirement. How a chartered accountant with incurable bullishness grew ₹5,000 into ₹50,000 crore.

It’s a Dematerial World

As an extension of these stories and their multiplier effect, demat accounts in India crossed 100 million by the end of August 2022. Many are inclined to demand, ‘This calls for a celebration!’ And, sure enough, India’s demat score appears globally impressive – 2.84 times the size of the population of Australia, 2.56 times the size of Canada, and 1.45 times the size of Britain. We have more investor accounts in India than there are people in some developed countries put together.

But, for me, the 100 million number is no big deal. It had to happen some day in a country of 1.38 billion. If anything, this should have happened years ago and that it has transpired now indicates how extensively we are behind the curve. It is not a motif of our success, it is an instance of how all our institutions and individuals have evangelised a peerless asset class so ineffectively that despite all the wealth creation of the decades, only 7 out of 100 people in India invest in equity today.

This is where the story takes an interesting twist. It took India several decades to achieve a moderate investor mass of around 40.9 million demat accounts at the cusp of the pandemic outbreak in March 2020. The number of demat accounts more than replicated in just 30 months thereafter. Something – or a number of things – happened at that investing inflection point. The operative word is no longer ‘quantum’ but ‘rate of change’. More investors are being created each month in India than what was probably created across any 12 months consolidated in India’s existence.

There could be several reasons for this disproportionate growth:

  • The fiscal stimulus announced by large countries created an unprecedented aggregation of investable resources.
  • The BSE Sensitive Index (Sensex) rebounded from a low of 25,639 in March 2020 to a high of 62,245 in October 2021, inspiring a large number of stocks to their respective highs – the most visible incentive for fence-sitters and agnostics to cross the floor. Never has such a large quantum and percentage index move transpired within as compressed a timeframe. This is a classic bull market phenomenon – the highest optimism and the largest investor turnout.
  • Investors have been inspired by the budget’s unprecedented outlay for infrastructure growth and stable economies policies.
  • India standing erect after multi-country economic or political collapses.
  • Major indices reversing with speed after an extensive decline – sending out a message that what we are going through is only a technical correction in a long-term bull market.
  • An ease in demat account opening.
  • An increase in mobile and data penetration attracting the uninitiated.
  • Decline in brokerage rates.
  • The inflation worry is discounted on the grounds that market growth will always be higher.
  • A sustained hammering away of the ‘Sahi hai’ mutual funds promotional line that could now be maturing.
  • A wider perception that equity returns beat real estate and gold by a long shot.
  • India’s equity deepening in Tier-2 and -3 cities, implying equity democratisation.

The mix of these factors played out on August 30 after US Federal Reserve chairman Jerome Powell hinted of successive interest rate increases to moderate US inflation. When the US sneezes, the world catches a cold. So, the conclusion was that Indian equities would decline sharply in the ensuing trading session. Instead, the BSE Sensex strengthened 1,500 points to close at 59,537.

The Scrip is Ready
Someone sent me a WhatsApp message, ‘Dikha diya!’ which was Morse for ‘This is the power of the new-age Indian investor. We are sending out a signal to the world that when you think we will follow Wall Street cues, we will vote with our savings and back our index instead!’

The idea I would like to leave readers with is that if we can teach the principles of equity investing in college, chronicle conversations with India’s investing outperformers – where they explain their process and outcomes – on YouTube with vernacular subtitles, introduce professional investing as a career option, and educate on the power of compounding, then India could get to 300 million – even 400 million – investors before the decade is out. That is when I will write a celebratory column headlined, ‘Finally’.