During my recent India trip, one clear trend I observed was how prevalent retail day trading had become across generations. I met a 21-year-old fresh grad who does regular options trading. I met a bootstrapped founder who, to paraphrase his words, “goes into the market whenever his savings dip below a certain point”.
One of my mother-in-law’s friends was boasting how “her son made 50 Lakhs profit in shares”. FYI this person is the 2nd generation heir of a massive family business. My father too, though not exactly a day trader, actively invests in hot Indian tech IPOs via these new-gen brokerage platforms (without ever consulting me, of course!).
To validate these observations, I went back to check on the growth numbers of Zerodha, the #1 brokerage platform in India by market share. And it’s a classic hockey stick! I am sure this isn’t news for many of you but for me, this was an eye-opening stat given I have a bit of a blind spot around India’s digital evolution during Covid years when I wasn’t able to spend much in-person time there.
Another similar trend I have been intrigued by, and again this might not be news for many of you, is the rise of online real-money gaming (RMG). Dream11, India’s top fantasy gaming company, has shown hockey-stick growth numbers similar to Zerodha. During my conversations with even the next tier RMG companies, their active usage numbers & profitability (hence, cash flow) are off the charts.
One clear takeaway from the above charts is that both these digital verticals took-off simultaneously in 2017-18, just after the launches of Jio & UPI in 2016. Jio’s cheap 4G services, combined with easier micro-transactions enabled by a UPI-powered digital payments ecosystem, have proven to be major unlocks. While Zerodha was founded in 2010 and Dream11 in 2012, their real inflection points came much later once growth enablers at the ecosystem-level were in place.
The widespread adoption of new-gen brokerage & RMG platforms is indicative of how markets in India will behave very differently in the coming decade. Accessibility, ease of use & small ticket sizes is unlocking retail “betting” behavior like never before.
Fresh college grads doing options trading at scale was unheard of in my generation (and I am a cusp millennial, so not that outdated!). In my time, both education & access were gaps. We didn’t have financial influencers sharing everything about markets on YouTube & Instagram. I still remember the good old days where one had to jump through multiple hoops of paperwork just to open a demat account, not to mention the terrible online UX that was impossible to navigate. And playing games with real money on the Internet? Forget it!
On the positive side, this broad-based participation in public markets is going to provide support to many different types of IPOs. Case in point is the recent SME IPO of Infollion Research. Its public offer was subscribed a massive 279 times at close. The retail investors’ portion was subscribed 264 times. The stock was listed at INR 209 as against an issue price of INR 82, a huge 155% premium.
Btw this isn’t a hot growth story riding a trendy tailwind like AI. It’s a business research services company with INR 35 Cr topline & INR 5 Cr PAT. A few years back, no one would have counted on such a company to garner this kind of investor interest. I believe this is a sign of a new type of retail investor coming into the market, which is fantastic for smaller companies that want to go public in India.
While it’s great that more people have an opportunity to own shares of public companies, this accessibility & ease unlock is also fanning dopamine-inducing emotions of greed & thrill. I have seen that happen with Robinhood in the US. In fact, one of my frequent advice to anyone looking to create long-term wealth with stock investing is to first close their Robinhood account. There is a real risk of young investors falling prey to the cocktail of ease of use, greed, fun & small “casino-style” bets.
Another side-effect of this trend is going to be more herd behavior. So, for any new investing pattern or idea that is starting to emerge, expect it to unfold at a significantly accelerated rate compared to a decade back. Similar to the meme stock frenzy that we saw in the US in 2021, will India have its own GameStop or AMC moment in a few years? Highly likely!
Finally, expect regulators to have a keen eye on these markets. We are already seeing the SEC crackdown on Coinbase, a company that is formally listed in the US & has passed all scrutiny to get here. With Indian retail investors participating in various markets in a big way, local regulators will need to be ahead of the 9-ball & safeguard both the interests of these individuals as well as the long-term stability of these markets.
The intertwined trends of retail trading & online gaming are going to have some fascinating implications for India. While I am all for more digital consumption & market participation, given a few grey hair I now have, I would also advise young Indians to navigate these markets responsibly.
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