Musing over the Stock Market
According to SEBI, the number of demat accounts has more than doubled from 359 lakhs to 738 lakhs in the last 3 years. A Demat account is where you store financial securities like stocks and bonds in electronic form.
The record number of new account openings shows the unprecedented interest new investors have towards investing in the financial markets.
This can be attributed to various factors like lockdown forcing people to find new interests, brokerage houses aggressively advertising, increase online connectivity, etc. But the most important factor remains the markets making new highs and everyone assumingly making unlimited profits.
One discount broker in their advertisement was seen using the slogan “Yeh Markets sabkha hai” translating as “This Market is for all.” Another was seen in which a person was trading stocks inside a lift.
Something similar happened during the Harshad Mehta bull run in the 1990s. The markets went up exponentially those days and people started investing like there was no downside.
“The Indian markets moved from 1200 points in 1990 to 4000 points in 1992, four times from nowhere. Therefore, when this mutual fund called Master Gain 92 (UTI sponsored) was launched, people queued up in all cities of the country. One out of every 20 people bought that mutual fund.” said Dhirendra Kumar, a mutual fund expert at a CFA conference.
This came to an abrupt end after the Harshad Mehta scam, dot com bubble, and various other scams broke out. People then started losing fate in the markets and started shifting their funds back to Bank deposits.
“In 1990–91, the total share of household financial savings invested in shares and debentures was at 8.4 percent. It fell slightly to 8.3 percent between 1991–92 and 1996–97. After that, it fell to 3.7–3.9 percent in the 2000s. The same happened with investments that people had in the Unit Trust of India, an indirect way of investing in the stock market. It crashed from 5.8 percent of the total household financial savings in 1990–91 to close to 0 percent in 2002–03” writes Vivek Kaul in Bad Money: Inside the NPA mess and How it threatens the Indian banking system
The current enthusiasm in the markets is somewhat similar to the 1990s bull run. The time when cobblers and security guards become expert investors, social media status is filled with screenshots of investment profits, and when risk is not a word anymore.
There might be no scams unveiled this time to scare investors but history shows us that markets go through phases both good and bad. What will happen when the bear phases kick in?
Warren Buffett, chairman of Berkshire Hathaway and the oracle of Omaha famously said “Be fearful when others are greedy, and greedy when others are fearful.”
It is for you to decide if the current market phase is similar to what Buffett was referring to as the greedy phase when everyone starts investing fearlessly like there is no downside or whether the bull run is here to stay.
By the way, Warren Buffett has another famous quote that goes “Only when the tide goes out do you discover who’s been swimming naked.”
This article was published in Investing.com
