ON January 23, Bloomberg warmed the hearts of the growing legion of stock market enthusiasts when it announced that the country’s market had overtaken the Hong Kong market (Heng Seng) to become the fourth largest in the world. India’s market cap stood at $4.33 trillion as compared to $4.29 trillion for Hong Kong, it said. For the record, the top three are: the US, the world’s biggest stock market with a market capitalization (mcap) of $50.86 trillion followed by China with a mcap of $8.44 trillion and Japan at $6.36 trillion. Just a little over a month and a half back, the Indian stock market capitalisation crossed $4 trillion. The astonishing part, as Bloomberg explained, was that over half of that has come in the past four years. ‘’The growth in the Indian stock market came on the back of a growing retail investor base, persistent inflows from foreign institutional investors (FII), strong corporate earnings, and solid domestic macroeconomic fundamentals. The Indian markets have settled with gains for eight consecutive years and are poised for further growth,’’ said Outlook quoting the Bloomberg report.
India Story traction
In sharp contrast, Hong Kong’s Heng Seng has had a record four-year streak of losses while the more high-profile Shanghai Stock Exchange is in its second consecutive year of losses. The losses and the slump have also been aggravated by the negativity and hostility toward China and collaterally towards Hong Kong. This has only exacerbated and consolidated over time. It is here that the India Story gains traction thanks to the increasing perception of the world to look at a China-plus-one model or in some cases a minus-China model. As the Financial Times noted,’’ the economic case for India is certainly compelling. Earlier this year, it overtook China to become the world’s most populous country. By the early 2030s, it could also have one of the largest working-age and middle-class populations. That will support its continued urbanisation and industrialisation and drive strong consumption and investment. It has already been the world’s fastest-growing major economy in the past two years. Capital Economics expects this to continue, projecting annual growth will top 6 per cent in both 2024 and 2025.’’
To come back to the stock market, all this positive sentiment has seen a flood of money into the bourses. Statistically, retail investors now account for close to 54 per cent of daily transactions in the Indian stock market, with DIIs (Domestic Institutional Investors) and FIIs (Foreign Institutional Investors) accounting for about 31 per cent and 21per cent respectively.
Retail investor influx
But this huge influx of retail investors into the stock market means that first-time investors are lured by the temptation of making a quick buck jump into the highly volatile and hugely risky derivatives trading. Moreover, the country’s derivates market is open to all – there is no minimum net worth, and everything is egalitarian. The only guardrail that regulator Securities and Exchange Board of India (Sebi) has put in place is making sure that the investor has a high amount of liquid capital to buy and sell shares. The huge leverage that was allowed at one point in time is now a thing of the past. And in many ways, this guardrail has worked.
This frenzy has also been driven by the ease with which one can now open an account and start trading with one’s mobile. Platforms like Upstox, Zerodha, Groww and AngelOne are now the numero uno of the trading firmament making their money from very low fees but a humongous turnover of retail investors trading by the hour.
Stock market frenzy
Frontline in an article quoted ’Axis Mutual Fund (AMF) on the growing frenzy in the stock markets, ‘’AMF estimates there are 4 million active derivatives traders in the country. The traders are mostly small players, according to SEBI data. Axis said in a report there is as much as 500 times leverage on some options, meaning a 2,000 Indian rupees ($24.01) bet gives the option holder 1 million rupees worth of exposure, and often retail investors were holding these bets for just 30 minutes on average.’’
Fyers Research, a brokerage firm quoted by The Economic Times, said that retail interest in SME IPOs was at unheard-of levels and added, “Retail interest in some IPOs has crossed all previously known subscription rates…. This euphoria may not last long, and certain companies may not display their financial performance similar to their stock price movement.”
All these trends point to a market that is heisted upon, gung-ho with a dil mange more attitude. A prudent and rational approach can do much to cool the market.
