The Remarkable Journey of the Indian Stock Market from Turbulent Times to Present Resilience

In 2003, when I turned 19, my curiosity about the share market began to blossom. Living in a C-tier town in India, however, presented challenges as there were limited sources to acquire information about the stock market, coupled with inadequate computer connectivity and internet access. Undeterred, I expressed my interest to my father, a postgraduate in Botany and a Principal at a Government School. Unfortunately, my enthusiasm was met with vehement disapproval. My father, adamant that the stock market was tantamount to gambling sanctioned by the government, resorted to physical punishment to dissuade me from pursuing this interest. Despite his stern warnings, I maintained my distance from the stock market until 2009 when I relocated to Delhi. Reflecting on my father’s cautionary stance, I remain uncertain about whether he was right or wrong. However, this episode sheds light on the prevalent skepticism within Indian families regarding the stock market, often viewed as a risky venture reminiscent of gambling rather than a legitimate avenue for financial growth.

In the year 2013-14, my father visited me in Delhi, where I was employed. Intrigued by my decision to invest a portion of my salary savings in the stock market and witnessing the substantial returns, he experienced a paradigm shift in his financial perspective. Acknowledging that he might have been mistaken in relying solely on traditional avenues such as bank savings, my father entrusted me with an investment of 20,000 rupees for the stock market. As I grappled with the question of whether my father had been wrong or circumstances had been unfavorable, I eventually arrived at a realization. The economic landscape during my father’s formative years in finance was marked by the infamous 1992 Harshad Mehta scams and the repercussions of the dot-com bubble from the USA, both of which influenced his perception of the stock market. Furthermore, limited internet connectivity and computer access, with newspapers and Doordarshan news as the primary information sources, contributed to a conservative approach rooted in family values. During that time, the prevailing sentiment in India was that wealth could only be amassed through land purchases, gold acquisitions, or savings deposited in banks with fixed deposits. It was not merely a reflection of my father’s views but rather a widespread mindset prevalent in many Indian families during that era.

In the context of financial markets, it is imperative to draw comparisons between developed countries and India. The Bombay Stock Exchange, as the first stock exchange in Asia, has a rich history, yet until 2019, only 4% of the Indian population engaged in the stock market, in stark contrast to the over 50% participation rate in the USA during the same period. The landscape began to shift after the COVID-19 pandemic-induced lockdown, with a noticeable surge in the number of participants in the Indian stock market. By the year 2023, the participation rate had risen to over 11%. To contextualize this, considering the population sizes of the USA (360 million) and India (1.4 billion), it translates to approximately 18 million participants in the USA and 15.4 million participants in India. This substantial increase in Indian market participation indicates a growing interest and confidence in the stock exchanges. Projections suggest that by 2026, India is poised to surpass the USA in terms of market participants, highlighting a promising trend in the evolution of the Indian financial landscape.

The surge in participation in the Indian stock market during the COVID-19 pandemic lockdown can be attributed to several key factors. Firstly, there was a notable increase in financial awareness among the Indian population, driven by a desire for better understanding and management of personal finances. Secondly, the emergence of discount stock brokers providing cost-effective platforms, almost free of charge, democratized access to stock trading, attracting a larger pool of investors. Thirdly, the widespread availability of high-speed internet facilitated easy access to a plethora of financial information, empowering individuals to make informed investment decisions. Additionally, mutual funds delivered impressive returns during this period, enticing more investors to explore the equity markets. The influence of popular web series, such as Scam 1992 and The Wolf of Wall Street, further fueled curiosity and interest in stock market investments. Lastly, the introduction of Prime Minister Modi’s UPI (Unified Payments Interface) initiative for cashless and immediate payments during the lockdown served as a significant catalyst, encouraging more participants to join the stock markets and embrace digital financial transactions. Collectively, these factors created a conducive environment for the substantial increase in stock market participation in India.

During the announcement of the COVID-19 lockdown in India, the stock market witnessed a substantial 40% decline, presenting an opportune moment for savvy investors. Notably, some participants seized the moment to invest in stocks, capitalizing on the favorable condition where esteemed valuation companies’ stocks listed on Indian exchanges were trading at remarkably low prices, often below their intrinsic values. For instance, Infosys stock, which was trading at a mere Rs. 950 during this period, attracted investors seeking undervalued opportunities. Despite lacking in-depth knowledge of fundamentals, these participants made strategic investments. In the ensuing months, as the US Federal Reserve slashed interest rates, foreign investors increased their stakes in Indian stock exchanges. This influx of capital not only bolstered the market but also resulted in significant returns for participants who had initially invested during the market downturn. The success stories of these early investors, coupled with their subsequent positive experiences, led to a shift in the mindset of new Indian participants. Engaging in word-of-mouth marketing through social media, they shared their success stories with friends and relatives, contributing to an increased interest and participation in the Indian stock market. This phenomenon underscored the transformative impact of informed investing during uncertain economic times.

In the current landscape, the substantial increase in the number of participants in the Indian stock market has notably fortified the influence of mutual funds and domestic institutional investors, primarily through their robust participation in Systematic Investment Plans (SIPs). This collective strength has become evident during instances of heavy selling by foreign investors, as the market has displayed resilience without experiencing significant downturns. This phenomenon has occurred consistently, approximately six to seven times, resulting in the market entering range-bound periods rather than witnessing substantial declines. The resilience of the Indian stock market during such occurrences has left foreign investors pleasantly surprised, prompting them to maintain their investments in Indian stock exchanges. This period aligns with the positive sentiments echoed by prominent financial agencies, as they express bullish outlooks on both the Indian GDP and stock market growth. The current scenario underscores the robust and mature nature of the Indian stock market, showcasing its ability to weather external shocks and instill confidence among a diverse pool of investors

In conclusion, the evolution of the Indian stock market, particularly during the challenging times of the COVID-19 pandemic and subsequent lockdowns, reveals a transformative journey marked by increased investor participation. The downturn in the market during the initial phases of the pandemic provided astute investors with opportunities to capitalize on undervalued stocks, leading to substantial returns. The introduction of discount stock brokers, coupled with heightened financial awareness and access to information through the internet, further democratized market participation. The resilience demonstrated by the market, withstanding foreign sell-offs and remaining relatively stable, has fostered confidence among investors, both domestic and foreign. The rising popularity of SIPs has emerged as a pivotal force, bolstering the influence of mutual funds and domestic institutional investors. As the Indian stock market continues to navigate uncertainties, the bullish stance from important financial agencies, coupled with the sustained growth in GDP and stock markets, signifies a positive trajectory. The current scenario not only reflects the maturation of the Indian stock market but also underscores its potential to attract and retain a diverse array of investors, contributing to the broader economic landscape.

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