Since Covid, there are two revolutions underway that are being driven by India’s youth. The first is a rapid rise in stock market participation, both directly and through mutual funds, and the second is a surge in credit-driven consumption. These intertwined trends are redefining both the investing and spending habits of a generation.
Prior to the pandemic, investors under 30 comprised just 23% of the NSE’s registered investor base; but by end 2024, that share soared to an estimated 40%. This increased share needs to be seen in the context that the registered base of investors on NSE has grown more than 3x since Covid. According to an estimate, the under 30 investor accounts for more than half of new mutual fund investors since 2020, with many from smaller towns. The proportion of retail F&O traders under 30 is estimated at almost 45%. All the above data is not based on value, it must be said, but is still very significant. A huge trend in India, not seen before, is that in spite of consistent and considerable selling by FIIs, markets have held up because of strong domestic flows, in part driven by this trend.
While earlier generations thought “save now, consume later”, this generation is more about “consume now, invest for later”. The under 30 segment dominates the personal loan business and the Buy-Now-Pay-Later (BNPL) sector. Whether it’s essentials or one time indulgences, everything is available on EMI; it is estimated that over half of BNPL volume emanates from Gen Z and millennials. The personal loan market too is driven by the same segment who are said to account for a significant part of the demand. Whether the personal loan is funding consumption or investments is an important question.
What is driving these twin revolutions? One, possibly greater optimism about the future which then fuels risk appetite, leading to taking leveraged bets in equities or funding lifestyle choices with credit. Second, the growth of Digital Platforms which have made access easy and seamless for a new generation which is digitally native. Third, Social Media influence, with “finfluencers” advocating equity investing while lifestyle influencers promote aspirational consumption. Fourth, a solid performance in Indian equities since the pandemic which has possibly led this group to believe that this kind of return is expected. The worst performing month (Oct 24) since Covid saw a 6% fall in the Nifty. Compare that to the larger corrections seen say in 2001, 2008 or 2011.
What are the risks? Household leverage is rising and coupled with higher equity exposure, Indian households are becoming more sensitive to market and interest rate cycles and more vulnerable to downturns. Savings – the lifeblood of our economy for long – is falling. Regulations and financial literacy need to help strike a balance between deepening and widening markets, while curbing reckless speculation and over-leverage.
