YouTube financial influencers create a trading frenzy in India

Novice investors are flocking to brokerage apps, with about 10 million new retail accounts opened in the past year

YouTube influencers in India have drawn millions of day traders to discount brokers such as Zerodha Broking, Angel Broking and SoftBank Group-backed Paytm. Getty Images

In November, when India was in the middle of a pandemic lockdown, one of the country’s top YouTube financial “influencers” was met with an unusually large barrage of requests on his trip home.

“My friends kept asking me how they could invest in mutual funds or equities – even a driver of an auto rickshaw asked me how he could set up a mutual fund with 500 rupees [$7] a month,” says Prasad Lendwe, 27, about his trip from Hyderabad to Malkapur, a city 480 kilometres north-east of Mumbai.

“When I started my YouTube platform, no one was interested in stock investing. I had few followers,” says the master's in business administration dropout who runs Hindi-language stock education channel FinnovationZ.

In the US, couch-surfing investors have been enticed into spending their stimulus cheques on Robinhood Markets and other free trading platforms by forums such as WallStreetBets on Reddit, creating a whole new generation of retail punters.

But in India, it has been a wave of YouTube influencers such as Mr Lendwe and a host of private stock-tipping social media chat groups that have drawn millions of day traders into discount brokers such as Zerodha Broking, Angel Broking and SoftBank Group-backed Paytm’s broker app.

Mr Lendwe started his career of demystifying shares with a single video on YouTube in 2014 on the basics of the stock market. He now employs 43 people to help with content and sales and has seen his YouTube followers triple to 1.38 million since 2019.

A recent tutorial on how investors could buy into the hot $114 million initial public offerings in December by the Indian unit of Burger King garnered as many as 275,000 views.

Private chat apps, which have more leeway than YouTube channels when it comes to touting stocks, have also attracted newbie investors. Among them: Aaron Joseph, 25, whose interest was piqued by a Telegram group run by future classmates in an MBA programme he is joining in June.

“There are always a lot of conversations about how people can get super-rich from the stock market,” says Mr Joseph, who previously worked at a start-up in Ahmedabad in the state of Gujarat.

Mr Joseph says he made money earlier from a bet on JSW Steel but his portfolio is now in the red. Among his share holdings are Jaguar Land Rover owner Tata Motors, which was tipped on the Telegram chat.

Although most of the pandemic restrictions imposed in March in India have been lifted, the retail frenzy continues. About 10 million new investing accounts were opened largely by retail investors in India last year, calculations from the country’s two main depositories of accounts show.

India’s average daily stock turnover has almost doubled to 16.3 trillion rupees ($221.6 billion) in January from a year earlier, data from Angel Broking shows.

India’s average daily stock turnover has almost doubled to 16.3 trillion rupees ($221.6 billion) in January from a year earlier, data from Angel Broking show.

Illustrating how widespread the retail investing phenomenon has become in India, Angel Broking said earlier this month that of the 510,000 new customers it acquired in the three months to December, 72 per cent were inexperienced and more than half came from small towns and cities.

Angel’s larger low-fee broker rival Zerodha said recently that it added half a million accounts every quarter from April, compared with just 280,000 in the first quarter of 2020.

The 11-year-old digitally focused firm is now the country’s largest broker, with more than four million clients who hold their stocks for more than a day.

Apoorv, 30, a director at a non-governmental organisation who declined to disclose his last name to maintain his privacy, is one fledgling investor who took to trading stocks because of the ease of trading on Zerodha’s app.

“It has become much easier to open an account – you don’t need to go out of your house, you don’t have to learn about complicated brokerage charges and you don’t have to print 500 documents,” says Mr Apoorv.

He says he was the first in his family to trade stocks when he began buying shares in Indian lender HDFC Bank in January on a Zerodha account.

Thanks in part to the surge in retail interest, India’s benchmark BSE Sensex has been on a record-breaking rally, nearly doubling in value since its March low and beating regional and US benchmarks in the past six months.

The Sensex has gained 32 per cent since August, while the MSCI ACI Asia Pacific Index is up 27 per cent and the S&P 500 added 16 per cent in the same period.

India’s individual investors have also piled into IPOs: the retail tranche of the $93m September listing by IT company Happiest Minds Technologies was 71 times oversubscribed, the most for a float of more than $50m, while Burger King India’s was 68 times, the second highest.

However, analysts warn that the simplicity of trading on apps could lead inexperienced investors to take risks that could backfire.

“This new era of e-commerce-like platforms has made buying stocks as easy as buying a mobile phone or soap online,” says Vivek Bajaj, co-founder of Stock Edge, a research and education platform for retail investors.

“Fundamental value has lost its relevance – and liquidity is driving everything.”

Mr Bajaj says he is worried that the coming IPO by Life Insurance Corporation of India, the state-owned behemoth whose share sale could be the largest-ever in the country, will lead to “mass hysteria”.

Deepak Jasani, head of retail research at HDFC Securities in Mumbai, says market declines will pose a test for the retail investors avidly following social media influencers for tips.

“Once you are comfortable with a particular group or person, you tend to follow him or her for a reasonably long time,” he says. “And because markets haven’t corrected, you gain more and more trust and confidence in that person.”

Meanwhile, although his portfolio is in the red, Mr Joseph says his interest in investing has not dimmed. He is now looking into buying cryptocurrencies.