Trump’s repeated tariff threats have rattled global markets. But in India, the market slump isn’t just about Trump. Millions of small investors are feeling the squeeze — for reasons beyond a potential US trade war.
It was the fear of missing out, or
Fear of Missing Out
That prompted Kanishk K. to begin investing in the stock market.
He informed LIFEHACK that during India’s struggle with the second wave of the COVID-19 lockdown in 2021, he began observing advertisements on Instagram showcasing social media personalities offering advice on earning money.
“I didn’t want to be left behind as others were making profits. This aspect really drew me towards investing in the market,” Kanishk stated.
He detailed how, following his initial foray into mutual funds, he progressively shifted towards stock market trading.
Similar to many novice investors, he lacked knowledge regarding the basics of investing but stayed updated on market trends, particularly through Reddit, the U.S.-based social media platform, as he mentioned.
Initially, “everything was going well.”
Enthusiasm in the stock market amid the COVID-19 pandemic
Saloni Puj* and Ishan Shah had experiences akin to Kanishk’s.
Puj, a media expert hailing from Kolkata, which serves as the capital of West Bengal, along with Shah, who operates a cultural hub imparting knowledge in art and music within the western metropolis of Ahmedabad, both ventured into stock market investments roughly during the period when pandemic-induced lockdowns were implemented.
Shah mentioned that the market was performing exceptionally well, giving the impression that everyone making profits was doing so through trading. He admitted to purchasing arbitrary stocks, often following suggestions from others. Surprisingly, regardless of his actions, he continued to see gains.
Puj adopted a more cautious strategy.
She stated that she was well-aware the market was experiencing an enthusiastic phase, and she recognized the bubble that was forming at the time.
In September 2024, the situation took a turn for the worse as the excitement surrounding their ventures suddenly deflated. Following an extended period of growth, the markets experienced a correction, which was then succeeded by a prolonged downturn.
New retail investors join the marketplace
For many Indians who entered the stock market following the pandemic downturn, the subsequent upturn proved to be an exciting period. This surge mirrored the approximately €250 billion ($275 billion) economic support package that Prime Minister Narendra Modi’s administration introduced in 2020.
Throughout the lockdown period, numerous individuals found themselves with additional free time and resources at their disposal, leading many to be swayed by the notion of earning fast and effortless profits.
“Sagun Agrawal, a derivatives trader in India’s capital markets and an advocate for financial literacy among women, noted that during the pandemic, individuals found themselves with extra money, leading many younger investors to enter the stock market as retail participants. This influx was beneficial for the market, enhancing liquidity and generating investment funds for capital creation,” he explained.
Online trading has gained popularity due to new firms providing minimal transaction costs and straightforward credit accessibility. An example of this is Margin Trading Facility (MTF), enabling investors to purchase stocks by initially paying just a portion of the total price. In this setup, brokers finance the remaining balance as a loan, accompanied by an interest charge.
What caused the market decline?
According to NSE data, from March 2020 to March 2024, the count of registered investors in India nearly tripled, reaching approximately 92 million.
India’s NIFTY 50 stock market index rose from approximately 8,000 points in March 2020 to unprecedented heights above 26,000 points in September 2024. Retail investors, swept up in the excitement, believed that everything was going well — right up until things took a turn for the worse.
In the six months since September last year, Indian equities have lost more than $1.2 trillion in value. In February, the NIFTY 50 benchmark index was down 16% from its peak, and on its longest losing streak since 1996. It was the worst performing global market.
Among those most severely affected were small retail investors.
“A significant number of these retail investors lacked proper information and pursued overly hyped securities, causing a bubbly environment in the market. Over the past six months, as adjustments occurred, these investors experienced substantial financial losses,” stated Agrawal.
Bijoy Peter, a senior partner at Bangalore-based Germinate Investor Services, noted that one factor behind the market adjustment was the gap between the escalating valuations of Indian corporations and their decreasing profits. He also mentioned that India’s GDP growth had decelerated to 5.4% during the July-September 2024 quarter.
He additionally highlighted insufficient governmental investment in infrastructure and various sectors back then, along with other worldwide influences.
Foreign Institutional Investors (FIIs) began withdrawing their funds from India. Meanwhile, China initiated similar actions.
implementing significant stimulus measures
In its marketplace, this attracted capital flows to the area, he mentioned.
The transfer of funds from India had significant consequences.
“When a substantial amount of money leaves, the consequences are significant since investors must offload their assets,” explained Peter. “Such extensive selling greatly influences share values, leading to a decline in the overall market.”
Peter highlighted that numerous beneficial initiatives introduced by the administration have gone unnoticed by the markets—such as raised tax thresholds, actions by the Reserve Bank of India aimed at infusing liquidity into banks, along with the government’s pledge for heightened expenditure on infrastructure projects.
Agrawal pointed out that back in September, the major participants were Indian High-Net-Worth Individuals (HNIs) along with significant investors. According to her, they perceived that the market was overpriced and offered little potential for additional gains.
“One trader, requesting anonymity, stated that when key investors withdrew their funds from the market, it triggered a downturn, leaving minor investors to absorb the financial losses,” as reported by LIFEHACK.
‘Trump offers India an unparalleled chance’
Despite facing turbulent conditions over the past five months, Indian markets are now showing signs of improvement as the stock market saw substantial increases last week.
Nevertheless, investors continue to be wary due to US President Donald Trump’s warnings about implementing reciprocal tariffs on India starting April 2, referring to India as “a major tariff abuser.”
Delhi has stated that it is engaged in talks with the United States aimed at setting up a trade agreement that would tackle tariffs and improve market accessibility.
Dr. Surjit Bhalla, an economist and formerly the executive director for India at the IMF, who also served in the Economic Advisory Council during Prime Minister Modi’s second term, expressed optimism about India’s prospects under President Trump, stating that this administration has offered India a singular chance to implement reforms.
This opportunity is unprecedented, especially when it comes to sectors such as trade, foreign direct investment, and various critical elements influencing GDP expansion and profitability.
“Bhalla stated that this is a vital time for implementing essential changes, covering sectors such as agriculture, both externally and internally. This presents an opportunity for India to progress to the next phase of reforms,” he added.
Small investors smarter now
In the meantime, retail investors such as Kanishk, Shah, and Puj, who have endured challenging periods over the last several months, are preparing for the potential effects of Trump’s proposed tariffs, all while hoping for the best.
Kanishk mentioned that he has become more careful following the downturn, stating that he now “takes the advice from financial influencers with a grain of salt.”
A year ago, Shah ceased operations, occasionally pondering if quitting prematurely. However, now he feels relieved as he observes everyone feeling quite stressed. He mentioned, “I think I may have avoided a major issue.”
Puj has completely overhauled her investment approach; she plans to remain stationary and purchase only modest amounts when the market declines.
After witnessing all her investments lose value just recently, she stated that she has become more knowledgeable now, noting, “Dropping in value isn’t very enjoyable.”
*names changed on request
Edited by: Keith Walker
Author: Shakeel Sobhan (located in New Delhi)