How social finance can redefine India’s investment landscape

According to Paytm’s IPO prospectus, only 3% of Indians are invested in the stock market. Of this 3%, it is safe to assume that most are less experienced. Millions of new investors will soon begin investing for the first time.

While the existing financial technology (or “fintech”) ecosystem is doing a phenomenal job of democratizing access to stocks and crypto, we must help retail investors sharpen their investing skills.

We have a moral responsibility to re-think the concept of investing education. Incorporating Mentorship and Apprenticeship concepts can help fill this gap to scale investing education across India. Why is investing hard to teach?

Investing is hard and emotional. New and even experienced investors are constantly tracking portfolios on their smartphones. We are all guilty of “buying high and selling low”. It is easy to be a “long term investor” until seeing scary price declines or notice experts turning bearish. Most confusing of all, we frequently see investors perform the most rigorous financial analysis on a blue chip stock and STILL manage to lose money.

Long-term fundamental investors need to understand finance, valuation, business, and macroeconomics. Traders must follow a specific strategy and set a timeframe – eg daytrader (intraday), swing trader (days or weeks), or position trader (weeks or years). Regardless of your investing style, one must remove emotion and learn market psychology, which only experience can teach.

What is the path forward?

We cannot rationally expect academic institutions to fill this gap – in India or abroad. While academic institutions have an obligation to help and have significant room to improve, there are many hurdles. Investing is best taught by a variety of experienced investors with a knack for explaining these concepts in layman terms. New, interested investors must proactively seek such mentors and start doing their own homework. Putting “skin in the game” helps; you’ll think about markets and companies much differently if you’ve invested even a small amount.

Decoding “Social Finance”?

Social media and investing are converging. This phenomenon is commonly referred to as “Social Finance”. The trend has been recently popularized by incredible retail interest in US tech stocks, crypto, Robinhood, and the infamous GameStop and WallStreetBets saga. However, most don’t realize that Social Finance has been around for a while.

Investing is inherently social and collaborative, and Social Finance is on the verge of mainstream. In the next few years, one can expect equity and crypto brokerages to continue providing easy access, with investors of all skill-sets turning to communities of savvy investors to sharpen their skills.

Conceptually, Social Finance is not new in India. We all have trusted friends and family that we rely on for financial advice. Millions of Indians are active on Telegram or WhatsApp groups discussing the hottest stock or crypto trend. We need to make it easier for new investors to find qualified mentors who are passionate about our mission.

How “Finfluencers” are helping and the opportunity that lies ahead

India’s investing education problem statement has led to the meteoric rise of “finfluencers”, or influencers who teach finance concepts on social media platforms. Finfluencers are doing an excellent job of explaining dry concepts in a tone that is relatable, non-intimidating, and easy to understand by investors of all backgrounds. Each Finfluencer has a specific investing style (trading vs long-term), asset class (stocks vs crypto), language (Hindi, English, or regional), and target audience. However, despite their popularity, only a few have over 1 million followers. This hails in comparison to the 70+ million demat accounts in india.

The counterargument to the “Rise of Finfluencers” is the number of bad actors and the popularity of “stock tip culture”. Finfluencers, or even Dalal Street professionals, should not be blindly followed. Instead, a culture of learning and self-improvement is the need of the hour.

On the ground, there are millions of young Indians who clearly understand the benefits of investing, but are craving an efficient way to learn. Most young Indians today are extremely bullish on India and thus looking at blue chip stocks for the long run. Many are also looking into US stocks and crypto. India also has a strong base of savvy young traders, who’ve worked hard at their craft.

To support retail investors, platforms such as Stocktwits will play a fundamental role in democratizing investing knowledge by providing a transparent and centralized platform that welcomes both finfluencers and investors of all types (eg beginners, traders, crypto) who are passionate about empowering the next generation of Indian investors.



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Disclaimer

Views expressed above are the author’s own.



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