During the California Gold Rush of the late 1840s, few of the prospectors made it big. The ones who definitely made money were those selling shovels, jeans (think Levis), pickaxes, and assorted stuff to the miners who had dreams of becoming rich.
This was the story that was playing on my mind when I invested a few thousands buying shares of ICICI Securities in the winter of 2020. My reasoning went something like this — the pandemic was seeing a rise in the number of people wanting to dabble in the IPO market and make a quick buck. So, opening a Demat account was necessary for that. The biggest stock-brokers, Zerodha and Upstox, weren’t listed and the next biggest player Angel Broking was just two months old on the exchanges.
So, ICICI Securities it was. Being the fourth largest player with strong equity, technological superiority, and marketing skills, it would gain a fair share of new accounts. A reading of the financial statements reinforced my thinking with its impressive growth rates and margins. A year down the line, capital gains, if any, would be attributed to my sparkling intelligence, and losses, if any, would be written off as the money paid to learn some market lessons. Heads I win, tails I win.
Even as I am writing this in the winter of 2021, the few thousands I invested almost doubled (the profits weren’t enough to quit my day job, though). I pored over the ICICI Securities investor presentation and a few facts jumped out at me. The overall active client base had grown from 1.63 mn in Q3 FY21 to 2.58 mn in Q2 FY22. Clients less than 30 years of age had grown from 39 per cent to 65 per cent in the same time frame, and clients from tier 2 and tier 3 cities had grown from 67 per cent to 84 per cent.
I then decided to see if other online players too were witnessing the same changes. A reading of the Angel Broking investor presentation showed that the inflection points appear in the years FY20 and FY21 where the penetration of Demat accounts were 3.1 per cent and 4.1 per cent. Here too, tier 2 and tier 3 cities were propelling the growth and the median age of clients acquired had dropped from 34 years in Q1 20 to 29 years in Q1 22.
New cohort of investors
So, who are these investors? And why have they popped up in the last year and a half? There is a term that has been attached to this new set of investors — Robinhood investors/traders. Borrowing from the trading app targeted at millennials, it is believed that the pandemic drove a lot of the younger generation to the markets. An explosive cocktail of work from home, surplus money saved (thanks to the lockdown), extra time on hand, low fee trading platforms on handheld mobiles, and a scorching bull market, just about sums it up. The fact that some of them made money through trading further fuelled this rise and partly accounted for the rush of liquidity into the system.
A cursory glance at the IPOs over the last few years and their retail subscription numbers show increasing levels of participation. Two years back, the multiples of retail subscription in a successful IPO was in the low double digits. Compare that to LatentView which listed in November, 2021. It had a retail subscription multiple of 119.44. In case the LatentView IPO is seen as an outlier, it’s not so. A majority of the issues over the last two years have seen staggering numbers from the retail segment.
In addition to the serious investor, there is an emerging breed that needs to be addressed through the medium they are most comfortable with — digital. They consume investing and trading content through Telegram, Whatsapp, YouTube videos or even Reddit. Be it influencers on the digital medium or digital ads, there is an increased thrust on this medium.
So, Robinhood or not, there is a new set of investors on the block. Once ‘work from home’ stops being the new normal and offices slowly get back to the old normal, will we see the same levels of participation in the markets? Will this rush for IPOs taper off or come to an end? The jury is still out on this one.
The tepid response to India’s largest IPO, PayTM, and the subsequent fall in its price might have tempered the infectious energy coursing through the stock market to a small extent, but the ‘irrational exuberance’, as the American economist Robert Shiller memorably termed it, still appears to be alive and kicking. And, there are new kids on the block fuelling it.
(The writer is Vice President, Strategy, at Adfactors Advertising.)