5 Reasons Why Investing in Stocks Is Undervalued In India

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By Kaleem Ullah

Out of 138 crores people in India, only 7.7 crores of investors accounts are registered. This is not even 10% of the total population. The worst thing is even though there are 7.7 crores investors accounts, hardly half of this population are active investors or engaged in online stock investing. So, why do the people in this country shy away when it comes to stock market investments?

Firstly, the reason is the lack of financial knowledge and awareness. Most of them live with the assumption that the stock market is a tough nut to crack. It is a deep-rooted thought and thus, even people interested in the market shy away. Another factor is that most people consider stock market investment gambling and not an investment. This is why investment in FDs, recurring deposits with such nominal interest rates, has the most number of investors and not the stock market.

Secondly, another deep-rooted thought is that one needs to have massive capital for investing in stocks. This is also due to a lack of knowledge about the market that one can start investing in stocks  even with Rs. 500. It depends on the stock you are buying. With the help of a stock investing app, you can directly invest in stocks. So, this can also save your time and the cost you would have paid to financial advisors and others. This can bring down the cost of investment and increase the return as well.

Thirdly, a lack of trust in the stock market leads to people not investing in the market. The root cause of this factor is volatility in the market, many companies winding up suddenly, companies making havoc losses, and not being able to pay shareholders dividends and their invested amount. However, with the improvement of stock market regulations by SEBI, now investing in stocks is much safer. Companies listing themselves have to go through different stages of evaluation and scrutiny so that they cannot fraud investors.

Fourthly, the volatility in the market keeps them away from the market as most investors lose patience. Since there are so many deep-rooted negative thoughts in people’s minds, they withdraw their investments when they see the market is dipping. However, the basic thumb rule of investing in stocks is no emotional investing. Like there are ups and downs in the businesses, there are ups and downs in the stock market. So, losing patience means losing your share of profit in the long term. If investors study the stocks thoroughly and then invest, there is no need to leave the markets during volatility.

Finally, the fifth factor is the affinity towards traditional investments like FDs, physical gold, and recurring deposits. To date, most Indian investors invest in these traditional investments to get a safe return. These investments may have a guaranteed return, but the rate of return is way lower than good stock investments.

While retail investors have been entering the stock market in the past few years like never before due to the new-age stock broking platform, the scenario is changing due to an increase in financial literacy. It is just the beginning, and there is a long way to go.