JOIN USProtect youth from stock market perils
A research scholar in Puducherry recently committed suicide owing to losses suffered in the stock market crash. There have been several cases of depression caused by stock market losses of late, especially among youngsters.
A global research report covering 36 countries spanning several decades suggests that a strong correlation exists between a stock market crash and depression/suicide rate, affecting men and women alike.
India’s stock market is relatively new and with a young populace, we would need the right interventions to help avoid cases of depression and suicide. But before delving into the possible interventions, it is important to understand the Indian stock market context.
The Indian stock market has gone up significantly ever since the March 2020 market crash. The benchmark index Sensex has jumped 2.5-fold from March 2020 to October 2021 and even after the current crash, it is over two-fold. Such a phenomenal increase has meant that more and more youngsters and even college students are attracted to the stock market with the lure of easy and quick money.
The Securities and Exchange Board of India (Sebi) data shows that India has over 7.7 crore Demat accounts, up from about 3.6 crore accounts back in March 2019. Reports suggest that India has been historically adding about 4 lakh Demat accounts pre-Covid and now has zoomed to 20-30 lakh every month. It is not surprising that 75% of all the new accounts belong to people in the under-30 age group. Awareness about the stock market has gone up significantly over the past two years with many experts gaining celebrity status with “stock tips” on social media apps. The reduced interest rates in fixed deposits and savings bank accounts have aided the sudden increase in interest towards the stock market.
Each person would adopt strategies that would suit their risk profile, be it short-term trading or a long-term investment.
Warren Buffet, the most famous investor, is widely acclaimed as the 'Guru of compounding'. He achieved success by patiently holding on to the stocks for several decades.
In his book 'The Psychology of Money', Morgan Housel beautifully summarises that an average person with no financial background or flashy degrees can create wealth by patiently waiting for decades. The example of Ronald Read, a petrol station attendant who saved his earnings, invested in Bluechip stocks and waited patiently for decades and created over $8 million wealth during his lifetime, is worth mentioning. The author argues that financial success is not hard science but a soft skill where how you behave is more important than what you know. He also stresses lesser greed and a longer time horizon as the key to wealth creation.
The other classic on personal financial advice is from 'The Richest Man in Babylon'. The 1926 book is a collection of parables that focuses on simple concepts like "paying yourself first", "living within your means", "investing in what you know" and the importance of long-term saving.
Financial literacy
While the Indian stock exchanges regularly run awareness campaigns — 'Soch Kar Samajh Kar invest Kar' from the National Stock Exchange (NSE) is very much appreciated — much more needs to be done. Market regulator Sebi should bring all the stakeholders to further improve awareness about the risks and possible benefits of stock market investing. There are several new financial investment instruments like the new NSE IFSC for investing in US-listed stocks. Sebi may do well to impose additional mandatory guidelines for all TV and social media stock market experts.
Can stockbrokers use advanced computing technologies like Artificial Intelligence to identify the risk profile of their customers? Can they run some proactive intervention for such customers when they see them falling into the yellow or red zone?
We need to prepare our Gen-Next to be financially literate. The National Payments Corporation of India (NPCI) and the CBSE have introduced a financial literacy textbook for class VI students to impart basic financial concepts at the initial stage of education. While this initiative must be lauded, the government must use the NEP (National Education Policy) framework to strengthen financial literacy.
The government should embark on a series of initiatives to educate students about money management and stock market awareness. Maybe a mandatory course for college students across disciplines with a mix of global and Indian examples could be used to increase awareness.
The risks associated with the stock market and other financial instruments must be emphasised to our youth, thereby bringing financial discipline among them. We need to act before it is too late.
(The writer is Managing Trustee, GVB Trust)