2024-07-22
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The recent stock market craze in India is attracting millions of retail investors.
Indian stocks have hit several all-time highs so far in 2020, continuing a strong rally that began in the previous calendar year. Currently, the market value of Indian stocks has exceeded $5 trillion.
Analysts believe that this is mainly due to the strong participation of Indian retail investors. The number of Indian retail investor accounts has more than tripled since 2020 to about 160 million. Especially among young people, it has become popular to buy stocks andOptions。
The once quiet Indian market is now bustling with gamblers eager to get rich overnight. Some analysts worry that the Indian stock market is overvalued and there is a risk of a bubble bursting.
Over the past few decades, the Indian stock market has been seen as a relatively closed and lackluster market, relatively less attractive than other major stock markets such as the United States and Japan.
However, in recent years, the Indian stock market has undergone tremendous changes, an epic "Bull Market" is brewing, and this once inconspicuous market is gradually becoming a hot spot in the global capital market.
India's stock benchmark Nifty 50 index has more than doubled over the past five years, outperforming major global stock markets.Over the past three years, the MSCI India Index has traded at an average premium of 58% to the MSCI Asia ex-Japan Index.
The outstanding performance of the Indian stock market has made it increasingly popular among overseas investors. Data shows that in May 2024, the average daily trading volume of India's Nifty 50 Index futures exceeded that of the US S&P 500 Index futures.
Under the money-making effect of this round of strong bull market, more and more retail investors are rushing into the market frantically.The number of investor accounts in India has more than tripled to about 160 million since the start of 2020, according to HSBC Asset Management.Net assetsIt doubled to 5.9 trillion rupees ($706 billion).
In fact, many young investors are unwilling to miss this opportunity to "get rich" and learn trading through social media and online platforms, using cheap derivatives for speculation. Ashish Gupta, chief investment officer of Axis Mutual Fund, found thatActive traders in India’s stock market surged from less than 500,000 before the pandemic to 4 million last year. Most of them are under 40 years old and mainly come from India’s small cities.
Analysts point out that there are many reasons why a large number of retail investors are pouring into the Indian stock market. First,India's rapid economic growth in recent years has seen the modernization of its capital markets, the introduction of online trading and central clearing, and the replacement of easily forged paper stock certificates with electronic stock records.
Indian stocks hit multiple all-time highs in 2024, continuing the strong rebound that started in the previous calendar year. Notably, the first-tier indices have maintained a sustained upward momentum over the past three years, mainly due to the active participation of Indian retail investors.
Analysts believe that this provides a good foundation for the development of the stock market. With the increase in disposable income of residents and the continuous expansion of the Indian middle class, they will invest their surplus savings in the stock market and mutual funds.
Strong financial performance by Indian companies also supported the market.Australian bank and asset manager Macquarie estimates that India’s earnings per share will grow 14% this year and next, outpacing other emerging markets. India is also getting easier to get loan funding, with JPMorgan Chase & Co. last month placing the government’sBondsInclusion in the emerging market index is expected to attract billions of dollars in foreign fund inflows.
also,IndiaStock ExchangeContinue to enhance the attractiveness of the stock market, launch new derivative products, and reduce the minimum option transaction size.That, along with a desire for quick returns, has sparked a surge in retail investors and unprecedented enthusiasm for investing. Notional trading volume for Nifty 50 index options has averaged about $1.64 trillion a day this year, outpacing the S&P 500's $1.44 trillion, according to Bank of America.
Amid the booming bull market, various hidden dangers are also accumulating. Some analysts have expressed concerns about the rapid expansion of the Indian market and the speculative behavior of retail investors.
Some analysts worry thatIndia's stock market surge could fuel speculative bubbleIt could end in a severe market correction similar to how the dot-com bubble in Europe in the early 2000s burst and scared off a new generation of investors.
Andrei Stetsenko, partner at Farley Capital, said inflows into Indian mutual funds could take a hit “when the inevitable correction comes.”
Some investors worry that the MSCI India Index is too expensive, just as it was during the 2021 GameStop craze among U.S. retail investors.
And hundreds of millions of Indians still face high unemployment, stagnant wages and a widening gap with India’s wealthy elite.This leads them to bet on high-risk, high-reward stocks because the dream of getting rich overnight is more attractive to them.Zero-day options (derivatives that expire on the day they are created) have become the hottest investments in the market.
“There is a lot of speculation;Sounds like a casino."Volkswagen is literally selling puts and doing restructuring calls. It's crazy," said Raamdeo Agrawal, chairman of Motilal Oswal.
A cheap way to acquire options, with leverage that supports high returns with low expenses, but also amplifies the risk of loss. Gupta said this isThe “gamification” of the stock market.he thinks,Retail investors in India often lack investment experience and have insufficient awareness of the risks of options trading, which increases the risk of a market crash.
However, some analysts are optimistic about the Indian stock market, believing that the group participating in the Indian stock market is still mainly middle-class or wealthy Indians, so there is still a lot of room for growth. Although the number of investor accounts in India has reached about 160 million, according to data from asset management company Polen Capital, only 7% of Indian household financial assets are held in stocks or mutual funds.This suggests that a large number of households have yet to enter the stock market.
Andrei Stetsenko said:
There is always the risk of a correction, but the upside is that it is an opportunity to add to a position you believe in.
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