IPOs, FO and large-cap stocks popular investment options among new-age investors in FY21: Experts

Market Outlook

Warren Buffett once said: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

The year 2020 reminds us just that. It was a time when there was fear of survival and the stock market saw a knee-jerk reaction back in March 2020.

But things have changed a lot in the last one year. COVID-19 might not be over but investors who invested in March 2020 must be celebrating because both the Sensex and the Nifty rallied by about 70 per cent in FY21 and more than 200 stocks on the BSE500 index gave multibagger returns.

Retail investors realised the potential of D-Street as 10-12 million demat accounts were opened in FY21, and most of the new investors are in the age bracket of 25-40 years.

Prakarsh Gagdani, CEO, 5paisa.com, told Moneycontrol: “We added 0.7 million accounts in FY21 and now have a total of 1.3 million accounts. We have seen a growth of 118 per cent growth from FY20, compared to FY21.

“We see a similar growth in FY22 as well. Considering the mobile penetration, affordable internet availability and interest in equities, we see the next 3-5 years as the inflection point in equity investing in India,” he said.

The new-age investors are well informed and online tutorials have made them well-versed with the nuances of trading and investment, suggest experts from the top investment and brokerage firms.

“The new-age customers are more adventurous and look for quick returns. They may have opted for futures and options. Also, last year saw one-of-a-kind rally in equity markets,” Hemant Sood, Managing Director, Findoc, told Moneycontrol.

“The returns of debt instruments are around 5-5.5 per cent, which are below expectations of retail investors. This money is now routed to equity markets, with the hope of higher returns, since equity, as an asset class, had delivered in the past,” he said.

Financialisation of savings is slowly happening because COVID-19 not just took away jobs for many but also made everyone realise the need for a second source of income. Income from fixed deposits in banks is not sufficient to cover inflation.

The outbreak of COVID-19 pushed the world to a new normal. The trend of diverting money from fixed instruments to D-Street is only going to pick up. Short-term upswings and downswings should not deter investors from their long-term investment strategies.

Also Read: Fresh breed of investors aged 30-40 years from Tier 2, 3 cities queue up to enter D-Street in FY22: Experts

As of March 31, 2021, the 20-year CAGR of Sensex was 14 per cent per annum, and Nifty 50 was 13.5 per cent per annum, data from Groww, which opened close to 2 million demat accounts since June 2020, showed.

During the last quarter of FY21 (January-March 2021), the average age of a new onboarded Groww investor was 27, of which the highest number of young investors are aged 25.

“In the under-30 age group, we see a strong overlap between stocks and mutual funds with about 60 per cent of our investors invested in both classes. Stocks are gaining tremendous popularity in the 18-24 demographic with a 20 per cent month-over-month growth,” Harsh Jain Co-founder and COO, Groww, told Moneycontrol.

“There’s a clear preference for large-cap stocks, particularly customer- facing companies, that can potentially prove to be wealth generators in the long term. IPOs are also emerging as a popular investment product, particularly due to the ease of applying with just a few clicks, due to the UPI integration,” he said.

Age is just a number

Age is just a number for these young investors who have joined the party on D-Street after witnessing a meltdown back in March 2020.

“The age range of new-age investors is around 25-40, and, currently, women investors, as far as our company is concerned, account for 27 per cent of the total demat accounts, which is quite less compared to male investors and can be seen as a room for growth to increase demat accounts,” says Sood of Findoc.

Dinesh Thakkar, CMD, Angel Broking Ltd, told Moneycontrol that they have been witnessing larger additions of millennial clients. The average age of clients on-boarded has continuously dropped from over 35 years in FY19 to 30 years today.

“The overall client base doubled to approximately 38 lakhs in February 2021, compared to just over 18 lakhs in March 2020. Since our successful digital transformation, our acquisition channel has been purely digital,” he said.

Key learnings investors should keep in mind

The last one year (FY21) turned out to be good for many new-age investors, but that should not be the criteria for basing investment decisions in FY22, advise experts.

The rising tide, fuelled by strong global liquidity, lifted stocks across the large-, mid-, and small-cap space. The market is made up of cycles; hence, investors should only invest in quality and well- managed companies.

“When the stock market crashed in March, there was a lot of panic but nobody expected the market to touch the highs it did within a few months. If you stay invested in well-managed companies for a longer time frame, returns are not impacted due to short-term developments,” says Jain of Groww.

“A key learning for investors in FY22 is not to base their investment decisions on a single year’s market performance,” he said.

Lack of understanding of risks

Experts have also found that new-age investors who joined D-Street in 2020 lack understanding of key risks.

“There is a fascination to invest in equities, combined with the fact that with interest rates so low, it has almost become a necessity to allocate some part of an investor’s portfolio into the markets and take some calibrated risk to generate a decent return,” Sanjay Sachdev, Managing Director Freedom Financial Services LLC, told Moneycontrol.

“The young population group of 25-54 years seems to have a high-risk appetite and have started investing in equity mutual funds. However, there is a lack of understanding of risks associated with investing directly in equities compared to either Mutual Funds or ETFs and that may possibly lead a lot of investors to burn their fingers and learn the hard way,” he said.

Sachdev clarified that we are already seeing that SIPs are witnessing consistent redemptions month after month for the last nine months, and that is not a good sign.

Be patient

Last year, the stock market has given tremendous returns, with IT and pharma leading the way. Markets itself teach you in each cycle.

Last year had seen new-age investors earn good returns but this may not be the case, going forward. Returns may not be the same going forward, says Sood of Findoc.

“There is a saying by Warren Buffet: ‘Stock market is a device for transferring money from the impatient to the patient’. So be patient and focus on good-quality stocks as they give returns in a range-bound market,” he added.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.