What is the millennial investor buying? Lots of risky products

Millennial investors who have been a dominant force in the Indian stock market in 2021 are increasingly veering towards high-risk products such as intra-day trading, derivatives and initial public offerings (IPOs), a report by Paytm subsidiary Paytm Money shows.

Nearly half of the users categorised as millennials—with 35 years as the upper limit—by brokerage firm Paytm Money took up intra-day trading as against 39 percent in 2020, the report released on January 11 said.

“2021 was a transformative year for the Indian stock markets. In the past year, we saw millennial investors mature as they sought to diversify their portfolios and invest for the long term,” Paytm Money CEO Varun Sridhar said.

Similarly, a millennial user carried out around 327 trades in the equity derivatives segment during the year, the report released on January 11 showed.

The company, which didn’t share the numbers of users, said 80 percent of its investors were under the age of 35.

Equity derivatives are considered high risk because of their complex nature, as they involve the use of leverage, which magnifies the risk as well as returns. Similarly, intra-day trading that often involves the use of leverage to take an outsize position is considered risky and requires nimbleness that retail investors often lack.

Making the most of the IPO rush

The domestic IPO market was buzzing in 2021 and these new-age investors made the most of it. In 2021, 65 companies launched their IPOs and mopped up more than Rs 1.31 lakh crore, 74.6 percent higher than the previous record year of 2017.

Nearly three in four millennials on Paytm Money invested in IPOs, with an average user applying for as many as eight public issues.

The high-risk activity seemingly paid off as assets under management (AUM) of the average user rose three-fold in the calendar year 2021, as the Indian equity market outperformed most developed and developing markets.

The benchmark Nifty50 rose 24 percent in 2021 but was overshadowed by a 46 percent gain in the Nifty Midcap 100 and a 59 percent jump in the Nifty Smallcap 100 index.

But it was not a risky play all the way.

Paytm Money said its users also boosted investment through the systematic investment plan route as average SIP transactions per user jumped 30 percent in 2021 from the previous year, while the average amount per user rose 16 percent.

Within mutual funds, there was a marked shift towards smallcap funds, as 42 percent of the millennial investors put their money in such schemes compared to 31 percent in 2020.

The number of millennials investing in the National Pension Scheme more than doubled in 2021, with overall assets under management growing by 389 percent over the previous year.