17 Lakh Abhimanyus entered Chakravyuh recently, did they make the right choice?

Recently, there was a trending message circulating on Twitter and Whatsapp saying that "17 Lakh Abhimanyus entered Chakravyuh recently, will they survive?" and it claims that those words are spoken by SEBI Chief Ajay Tyagi at a FICCI event on capital markets. This is related to the new addition of over 17 lakh Demat accounts in India during April and May this year.

Now, let's understand in detail what do these words mean and whether these 17 lakh Abhimanys made the right choice.

Spike in Demant Accounts

Despite the lockdown and the downfall in the stock market, the number of newly opened Demat accounts has recorded a spike in the months of March and April with people increasingly investing their savings into equity markets, reports Economic Times.

Around 17 lakh new demat accounts were opened during the lockdown period and it was considered very high compared to 42 lakh new demat accounts that got opened from April 2019 to February 2020.

The number of new demat accounts surged despite the lockdown, NSE internet trading volumes jumped 53 percent in April, and the indices climbed a third since the March 23 low. Despite the pandemic, the market raised over ₹2 lakh crore capital in the first quarter of 2020-21.

Why did this happen?

• FY 2020 saw the steepest fall in Indian equity markets in 11 years. Sensex and Nifty lost 23.8% and 26.03% respectively in FY 2020, the worst since FY 2009. Investors think that markets have gone through steep corrections and perceive the current situation as a buying opportunity.

• Sharp fall in the prices of several quality stocks has tempted retail investors to make direct purchases than investing through mutual funds.

• Since a large number of people started work from home, it gave an opportunity for individuals to invest some time in trading.

• Low deposit rates in banks also brought new investors looking for higher returns compared to other asset classes.

• Lack of other investment opportunities.

• Increased publicity by brokerages about stock trading and branding it as "The best way to earn money from home"

• Due to the COVID-19 pandemic, different challenges and opportunities are emerging. On the opportunity front, huge money was waiting to enter the retail segment and the market gave them an opportunity to enter at substantially lower levels.

• Historically, from 2 to 3 years, there was a continuous spike in demat accounts due to entry to millennials and young investors. 

From the above figure, its clearly visible that historically, from lat 2 to 3 years, there was a constant growth in new demat accounts opened.

SEBI Chief's concern over 17 lakh Abhimanyus

SEBI chief recently expressed his concern over 17 Lakh new Demat accounts opened in April/May 2020 and increased stock trading by investors. In Mahabharat, the youngest warrior Abhimanyu got killed attempting to break the chakravyuh. He knew how to enter the Chakravyuha but knew nothing about how to come out of it. Traders (Abhimanyus) enter Chakravyuh with the feeling that short term share price movements can be spotted and traded correctly to earn a profit, actually it isn't doable. As per Harvard, actual or anticipated financial gains release the pleasure chemical ‘Dopamine’ in the brain. Similar brain activity happens when you consume Cocaine. Pleasure seeking brain ultimately becomes addictive. Trading activity then increases manifold and in one large adverse movement, the trader loses his shirt. Remember –Out of 40 Lakh Mahabharat warriors, only 4 knew how to enter and exit Chakravyuh successfully! So try to understand what the SEBI chief is worried about. His inability to protect the new Abhimanyu. The pros are thanking Abhimanyu for providing liquidity to markets and bringing the fresh money to lose. 😄

Should you invest in Stocks?

Investing in stocks can be a sound financial decision depending on your needs and situations. If you’re looking to grow your savings over the long term (10+ years,) investing in stocks is a good option. If you think you’ll need the money sooner, investing in stocks may not be your best option.

Is it the right time to invest?

Yes, it is a good time to invest in stocks now as of now for a long time (Investing). Since markets are under correction, from an investing perspective, it is a good time for a new investor to start investing. 

A quick tip is to make small investments and as the market moves upwards, start investing more.

No, it's not a good time to invest in stocks now as of now for the short time (Trading). Right now, markets are under correction and it is not clear how markets are moving as of now. Markets are volatile and trying to get settled now. So, it's not a good option for new investors to start trading as of now. People who invest through Trading are requested to study the markets, Technical Analysis, and Indicators to start their journey.

To all the new investors,

Wealth can't be built overnight without efforts.

I hope you understand what I am trying to say and please do comment if you have any queries.