Five things influencing new age investing
While institutions brace themselves for rising interest rates, retail participation in the financial markets creates a disruption.
Institutional investors dominate financial markets. Trillions of dollars worth of equity, debt, commodities and now crypto-currencies are traded in markets worldwide. A hint of a potential hike in interest rates in America two years from today could cause turmoil in markets worldwide. The ‘easy money flow due to near-zero interest rates is unlikely to last forever. While institutions brace themselves for rising interest rates, retail participation in the financial markets creates a disruption. It is happening in America, and it is happening in India. Those born after 1996 are called Gen Z. Those born between 1980 and 1996 are called Millennials. Their behaviour will increasingly influence markets.
Millennials and Gen Z
A report earlier this year by Deloitte, a global consulting firm, surveyed over 14,000 individuals around the world who fall in the millennials and Gen Z category. “Two-thirds of millennials and Gen Zs see wealth and income as unequally distributed in society,” it said. Another survey in June 2021 by an American investment advisor Manole Capital Management found that an increasing number of young people are signing up to invest and trade in the stock market. India, too, has been witnessing a dramatic surge in the registration of new investor accounts. Not long ago, that number stayed around 2.5 crore demat accounts. It has jumped to over 6.5 crore in the past year
The American investment advisory firm that surveyed Gen Z found that over 40% of those surveyed are investing through Robinhood, a new age stockbroker. The company’s website homepage has a tagline, ‘Investing for everyone and offers commission-free investing. The popularity of this company during the pandemic could be explained by the need of the millennials and Gen Z to enable more people to create wealth and reduce inequality. The momentum is so strong that it recently went public in the US. The company did not use traditional bankers and roadshows to market the initial public offering. It conducted an online free-for-all event where founders answered questions from anyone. (Your columnist participated in the process.) Just like Robinhood, Zerodha, a Bengaluru-based company, has disrupted the stockbroking business in India. Similar firms have spawned quickly to tap into the potential.
There is a lot of social media buzz on stocks. A lot of youngsters are investing based on discussions on social media. A meme stock is the one that witnesses a surge in trading volume and volatility based on information on social media. The action is a sort of a herd mentality and is barely based on the stock’s fundamentals. It is the conversation in Whatsapp groups or on other social media groups that drives the share price of such companies.
Among social media companies, discussion groups on Reddit are turning out to be the place to discuss the stock market for youngsters. In America, WSB or WallStreetBets is the most popular group. The dramatic action in shares of companies like Gamestop was attributed to WSB. A reading of the conversation here suggests user-generated trading ideas. That means anyone can suggest trading ideas. It is a bit of a double-edged sword. Users generate them and other users evaluate them. The background of those writing or correcting wrong ideas is irrelevant.
Fractional ownership allows you to buy your favourite a slice of high-priced share of your favourite company. You get benefits in proportion of your fractional ownership. Instead of buying a fully-priced share of Apple that trades at $ 146, you can buy a fraction of it for a lower price. So, if Apple declares a dividend of $0.20, you get paid proportionately. That is not allowed in Indian shares so far. However, it is a matter of time. Regulators all over the world would have to sit up and take notice.
What it means
If two-thirds of India’s population belongs to the millennials and Gen Z category or under the age of 35, financial markets are all set to witness a dramatic shift over the next few years. The low-penetration of equity markets in India means that new investors would start their equity investing with these concepts.
(The author is editor-in-chief at www.moneyminute.in)