BullsEye: Be Careful Before Jumping On The Stock Market Bandwagon

First-time investors are flocking to D-Street amid high volatility. What should they be careful about?

Dalal Street

Courtesy - iStock

20-year-old Aditya and his friends gathered at their college canteen after eight months of online lectures and “non-existent” college life. The group of second-year aviation graduates have stressed over everything from uncertainty around jobs, brainstorming ideas for a start-up, and becoming the OG “finfluencers”. When Aditya saw Scam 1992, he decided to try his luck at Dalal Street. He spoke to his parents; followed stock analysts on Twitter, Reddit, and Clubhouse. And voila! He had his Zerodha account. Better yet, his friends followed the “bull” when they saw his portfolio in green and got their accounts.

“Aditya advised that I buy Tata Power a year and a half ago when it was merely 58 Rupees. I did not because I didn’t know anything about the markets. Today that stock is hovering around Rs. 250. If I would’ve listened to him and bought even 100 shares, I would’ve earned a decent amount,” his friend Drishti Gandhi notes.

FOMO hit Drishti even harder when others in the group started discussing their “profits” while thanking Aditya for all the “stock tips”. Aditya is among the millions of first-time investors who have jumped on the stock market bandwagon in the last two years. According to the Securities and Exchange Board of India (SEBI), the number of DEMAT or stock accounts has more than doubled from 3.6 crores in March 2019 to 7.7 crores as of November 2021. Most registered under first-time investors.

Where economic stagnancy and job uncertainty was not enough for young Indians, blockbuster performances of companies like Zomato became a pull factor. At a time when traditional asset pools promise meager Returns on Investments (ROIs), young are swayed by lucrative returns that Initial Public Offerings (IPOs) of relatable brands offer. Public companies such as Zomato and Nykaa benefitted from their value surging not just because of strong fundamentals. Their popularity among the masses driven by social media also helped. “From one day to day one” became a catch-phrase for marketing gurus. Falguni Nayar became a household name. And Paytm despite its under-performance continues to be India’s largest-ever IPO to be rolled out. In the history of Dalal Street, 2021 would be seen as the year of “meme stocks”.

“I applied for all the big IPOs – Zomato, Nykaa, and Paytm and I learned that they are a stroke of sheer luck. I was lucky to get an allotment of Zomato. But I did not have the same fortune with Nykaa and (thankfully) Paytm,” says Aditya. Two of his other friends followed suit and ended up with shares of Paytm instead - a stock that recorded a sharp 27% drop on its debut day and has barely recovered since. Mani and Satyesh are still holding onto Paytm shares and learned a crucial lesson, not to go in blind and always do their due diligence.

Courtesy - The Quint

The glitz and glamour of the unicorn bubble appear to be weaning off. Markets are volatile. If global markets continue to remain bearish in the near run, then D-Street is likely to close on negative notes as well. On a positive note, many are gearing up for the much-awaited IPO of insurance giant LIC. Drishti, Mani, and Satyesh are eyeing the same. Now, they don’t rely simply on “stock tips” from Aditya.

They have downloaded Zerodha Varsity on their phones to understand the markets. Varsity is an in-depth collection of the stock market and financial lessons created for millennial investors. They also follow analyst threads on Twitter and Reddit, study the sector and the company before buying a stock. Twitter has become a good starting point for first-time investors. Stock experts are aware of this trend and often impart crucial guidance and lessons learned.

On Twitter, Lalit Keshre, CEO of Groww, advised, “Continue learning. That is the best thing about investing. It is helping me learn about business (without b-school). Learn from others, avoid tips. And, do read this book - The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness. I am still learning.”

(This article on personal finance is part of The Quint's 'Save and Grow' campaign)