The Securities and Exchange Board of India, the stock market regulator, has warned about unscrupulous entities using social media platforms to fool you. They add you to the so-called ‘VIP’ groups posing as experts advising rich people. You are then asked to put money into accounts promising higher returns.
In a world where those who cheat have access to technology, you, too, can use the same weapon to protect yourself. If you say ‘you are unaware’, it is no longer than an excuse. The online world is rich enough to provide basic knowledge of factors influencing your investments. The role of regulators is to provide you with early warning signals. However, the onus is on you to utilise the resources at your disposal.
When your columnist began writing about stock market trends in the 90s, the most common weapon for investor protection professional advisors offered was knowledge. ‘An informed investor is a protected investor’ went a slogan then. With the enormous amount of information available through artificial intelligence tools and other online resources, you are better equipped to protect your money than an investor in the 90s. The slogan remains the same even today.
Where to begin
Your first step is to read as much as possible. An interplay of interest rates and inflation influences your money. The cost of money is typically the benchmark 10-year government bond yield. It is trending down in India as inflation is relatively low and projected to remain downward. At the same time, the government is managing finances sensibly by keeping the fiscal deficit low. That reduces the borrowing that the government has to do to meet the day-to-day expenditure.
Interest rates and inflation information can be found in the Reserve Bank of India’s Monetary Policy Statement, published once every two months. The next meeting is expected in June 2025. You can ask the modern AI tools to summarise and simplify the statement if the analysis in the media or television studios is not enough or simple for your understanding.
Stock markets react to rising interest rates and inflation negatively. Similarly, share prices move upwards if interest rates and inflation trend down consistently. Corporate profitability is at the heart of stock market returns. It is linked to factors like economic growth, interest rates and demand for goods and services.
The RBI also projects economic growth once every two months. It puts out an outlook for the quarters or a year ahead. You simply need to focus on the trajectory that shows higher growth as an investor. Companies that ride on India’s economic growth usually grow profits faster. It is usually twice that, as a thumb rule. If India’s economy grows at around 6% and corporate profits grow at around 12-13%, share prices are unlikely to grow at a multiple of profit growth rate. They usually follow the trend in corporate profits. That means, if in a particular year they rally 25%, they will eventually fall back to a level where the average return is in line with profits.
All of the above will make sense to you if you are a long-term investor and are staying put. Nobody can promise to double your yearly money based on the market performance. As you choose your advisor, look for registered intermediaries with regulators like Sebi, RBI and IRDAI, the insurance regulator.
No other government entities can regulate intermediaries that sell you stock market, fixed deposits or insurance products. Anybody on social media offering to double your money wants to make money from your hard-earned savings. Be aware of them and stay away. Your task is to cover your bases by reading regularly. It may sound simple, but it requires effort.