Indian Millennials & Stocks.

Somewhere around 2008 Nikunj Dalmia, Chief Editor, ET NOW  had the opportunity to interview Rakesh Jhunjhunwala and in that famous interview he had mentioned: " A TSUNAMI of domestic flows will come to India". India did see a big influx of funds pouring into the equity markets through the Mutual Funds route in the next couple of years, however, will India see a halt in this trend due to COVID 19? 

Decadal Low:

Consider this, in the data released by AMFI (the body that tracks Mutual Funds), June 2020 had an inflow of just 235Cr. Headlines like " Equity Mutual Funds see a 95% fall in net inflows" dominated all the business dailies. To give you some perspective, the average equity inflows are around 7000 Cr./month. So what just happened? Is it just that people are saving for the uncertain times that are ahead and hence preferring a safe FD in a bank? Or there is something that's changing in the Indian investor landscape? Also, let's not forget the towards the end of April, Franklin Templeton one of the giants in the Indian Mutual Fund space shut 6 of its Debt MF schemes. ( The combined size of these six funds was around 25,000Cr.) Before we get into the details, it is also important to understand how the erstwhile Indian investor had multiple options to choose from, in their journey of investment.

Changing Investor Landscape:

A few decades back Investment in India meant, you just had 4 options: 1.GOLD 2.REAL ESTATE 3.FD's 4. CASH. Yes, we did have Stock Markets in the 1990's also but considering the penetration levels then, it was almost next to nothing. In fact, we haven't progressed much till the beginning of 2020. Consider this out of 3.75 Cr. Demat accounts in India, only 0.95 Cr. Demat accounts were active in march of 2020, as per MarketMojo Study. In percentage terms considering India's 1.3 BN Population, only 3% of the country has a Demat account and when you consider active accounts it's at an abysmal 0.75%. Most of the developed countries have at least 20-30% penetration. Another drawback has been the flurry of scams in the '90s that garnered eyeballs and kept many Indians away from the markets, as many believed its a gamble.

However, 3 major policy reforms by the Govt. of India was all set to change the existing landscape: Demonetisation & RERA in 2016 & GST Implementation in 2017.RERA literally busted the notorious ones with only the ethical & organized players surviving. Slack in demand in the residential housing space meant the prices have also not moved and hence the investor didn't see value in Real Estate as an Investment. I remember moving to Pune in 2015 and seeing one of the prominent builders selling a 2BHK for around 49lakhs, guess what I still the same builder advertising for that same project with a revamped advertising campaign, but the pricing, the same as 2015... But is all that bad for Real Estate Investors?  Well, I will leave that topic, for now, something pretty interesting happening in that world too. ( Wait for my Next Blog)

Lastly, Demonetisation meant the erstwhile practice of saving in CASH ( read under the bed ! ) was at risk. And coupled with the drive for Payments bank culture, India adopted quickly the digital money and hence CASH lost its prominence.GST implementation also led to the consolidation of the market. Long story short, the Indian Investor was now left with just 2 options: GOLD & FD's. Now I am sure, if you have been tracking the FD Interest rates, you have zillions of reasons to be disappointed, its been heading southwards for the last few years.  From the earlier normal of 5-6% its now close to 3-4%. So now that leaves us with GOLD only! Which still continues to shine and the Indian community that has trusted this yellow metal, seems to be happy for now. People are not just buying GOLD during Weddings, but the internet savvy generation is also hooked to GOLD ETF's.

COVID Times:

Then came COVID at the beginning of 2020, however, India got a sense of the chaos that it was bound to create only in March. And as they say - Markets are forward-looking, end of March saw the established blue-chip stocks tanking almost 40% !! There was mayhem globally in the stock markets and unheard prices were quoted ( read ultra-cheap valuation  ). And this is where the story changes. The greatest recovery in decades begins. Looks like the investors took a cue from Warren Buffett's quote that any investor shouldn't forget - "Be fearful when others are Greedy & Greedy when others are Fearful". But before we dive deeper, let's understand who are these Millennials since they are the change-makers in the Indian community of Investors.

Millennials & Why they matter? :

Without getting into the technicalities of who are millennials, for ease of understanding millennials are someone born in the 1980s, 1990s & early 2000'. Cambridge dictionary summarises this the best: 'Millennials have grown up with the internet and can't imagine a world without it'. When it comes to INDIA, they are almost 1/3rd of the country at 400mn. But here is the kicker - According to a 2018 Deloitte report, 'millennials are the chief wage earners in India with 47% share in the working-age population'. Hence when it comes to trends of India's consumption or spending, their voice will be the loudest.

Lockdown & Robinhood Investors( Millennials):

March end also saw India implementing lockdowns, started with a few weeks, and then it eventually got stretched for months. Work From Home ( WFH) evolved from a policy to a strategy. While all this chaos was on, the Millennial Indian Investor was struck at home and was spending only on the essentials,  - no holidays, no partying, no splurging on clothes, and goes without saying that meant SAVINGS!  Now visualize the scenario - sitting at home with the Internet being the savior and all the earlier modes of Investments disappointing, the Millennials realize quality stocks are up for grabs and the best part it's on Sale! I mean take some of the examples, HDFC was trading at 770-800 range, RELIANCE touched 900 levels, ITC touched 150 levels. This is when the Discount Brokers captured the market like there is no tomorrow. Frenzied opening of Demat accounts was experienced. UPSTOX last month claimed they touched 1 Million customers, ZERODHA's founder Nithin Kamath mentioned they have added 3 -5 Lakh accounts in the last 3 months alone. In fact, ZERODHA dethroned ICICI Securities & HDFC Securities ( the erstwhile BIG 2 Stock Brokers of India) in 2019 and emerged as the No.1 Broker of India.  And with most of these discount brokers ( behaving like startups) offering the opportunity to buy stocks at ZERO BROKERAGE, the millennials diverted their savings here! My biggest learning from John Bogle's classic book - "The Little Book of Common Sense Investing" is “The two greatest enemies of the equity fund investor are expenses and emotions.”, the discount brokers have taken the expenses part head-on and solved that part of the problem. If you are amused by the slew of sociocultural changes in the Indian Millennial Investor's lives in a few months, don't be- that's how we humans are, we ADAPT. They say all you deserve in life is an opportunity, the millennials did grab the investing opportunity with both hands!

Someone's Loss is Someone's gain:

So you must be wondering with this background, wasn't the Mutual Fund industry was also supposed to see a boom, with so many new investors flooding the market? Wrong. This new breed of Investors, who are known as Robinhood investors who have a higher risk-taking appetite decided to bet directly on the stocks, rather than the safe & consistent Mutual Funds.  While I still believe in the long run the Millennials will also come back to the safety of Mutual Funds. For now, the seem to be enjoying their stint at betting directly on the market. 

What the Future holds:

The markets have gained almost 40% from the March lows, so the Millenials who bet during the selloff in March, are having the last laugh for now at least. SEBI's June end report shows the trend is catching up, with 41 Lakh Demat accounts opened in this yr, its the highest the country has witnessed, but the scope for growth is still exponential as penetration levels are still at 3% ( remember India has only 3.75Cr. Demat accounts as on JUNE 2020).

 Now I do understand what Rakesh Jhunjhunwala meant when he said years back - "A TSUNAMI of DOMESTIC funds will come to India". India's GDP took 60 years (1948-2008) to kiss its first trillion, for the next Trillion it took just 7 years (2008-2015), & the Third Trillion in just 5 years (2015-2020),  Analysts predict the Fourth Trillion will take 3 years (2020-2023). SENSEX gave 100X returns in the past 32 yrs, if someone invested 1Lakh in 1985 and forgotten about it, they would be a Crorepati today. By 2032, 8 out of 10 Indians will be in the coveted league of the global middle class. The pandemic has indeed thrown a spanner in the works for now, but its a matter of time we will discover the drug/vaccine. Never underestimate the power of your fellow human beings. So my two cents - Don't miss this opportunity, Invest on INDIA. 

Stay Safe & Happy Investing.

P.S: Investing is a science as well as an art, do consult a professional for guidance in this world and never forget to learn through your & other's mistakes. As Benjamin Franklin said, " An investment in knowledge pays the best interest".