Why the current crop of retail investors are different

KS Badri Narayanan Chennai | Updated on July 30, 2021

Lesser info asymmetry, affordable fundamental and technical tools play a huge part in this

From the Harshad Mehta scam to the bubble, the Ketan Parekh saga to the Lehman's collapse, one common thread has been the entry of retail investors near market peaks. Fast forward to today and the entry of a new set of investors on the back of a rip-roaring bull run have led to many experts voicing their discomfort. They fear, this time too, retail investors are getting hold of the wrong end of the stick. But it’s really different this time.

It will be fool-hardy to underestimate new-age retail investors entering the market with a billion dreams. Compared to the uninformed ‘small guy’ 10-20 years ago, today’s millennial investors are in a different plane altogether. In terms of information flow, fundamental analysis and technical tools, the gap has been narrowed between the modern retail investor and professional investors.

Their matured behaviour was visible when Covid-19 pandemic broke out last year. Even when foreign portfolio investors panicked and sold shares, retail investors stepped in and handled the event well. As a result, retail investors are experiencing profits and thus setting off a virtuous cycle of attracting newer participants and boosting the country’s equity culture.

However, their real test of mettle will emerge only when the market faces a rout as in the case of Lehman Brothers.

Information flow

Previously, investors used to suffer on information flow, but that is no longer the case.

Retail investors fall prey to their brokers or speculators’ advice, as they are often at the wrong end of the information flow chain. Their reaction is often preceded by the action on the the company’s stock, thus leading to retail investors getting stuck. However, thanks to the Securities and Exchange Board of India’s continuous efforts, both the level and timeliness of information now available through the exchanges has levelled the playing field for everyone.

Even, details of exclusive analyst meets hosted by companies have to be uploaded on the exchanges within 24 hours. Though SEBI chief Ajay Tyagi recently slammed India Inc over poor standards of disclosures, one must admit that they have improved vastly in the last 4-5 years.

Tight leash on insiders

Another aspect in which SEBI has tightened its grip is insider trading. Its clear definition on “Unpublished Price Sensitive Information” (such as financial results, change capital structure, corporate actions such as dividend, bonus, merger or demerger etc,) and “insiders” (promoters, board of directors, key managerial personnel and immediate relatives of insiders etc) has cleared a lot of ambiguity. Besides, SEBI's vigour on going after insider trading cases is also praiseworthy though a lot more needs to be done on this front.

Affordable tools

Earlier, only a few were able to afford separate Reuters or Bloomberg terminals which give an ocean of information to investors. But, now information is available across providers such as Tijori, Screener, Trendlyne, Markets Mojo, Webull, etc for retail investors at very affordable rates. An annual subscription usually costs just a few thousand rupees. Similarly, there is a host of websites giving technical analysis tools as well. Besides, some brokerages give a helping hand through customised products.

Another noteworthy development is some brokerages are flagging investors on potential manipulated stocks during the time of placing order, protecting the small investor. While retail investors are not lagging behind much vis-a-vis professional investors, SEBI and exchanges still need to guide them through enhanced financial literacy programmes.

Published on July 30, 2021

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