Is a boom in retail shareholder activism imminent in India?
As it turns out, those who pushed up prices by buying stocks – against conventional wisdom – weren’t Wall Street but individual and retail investors. Their street logic was simple: The United States was gradually opening up and during the pandemic people would want to drive cars rather than use public transportation. This meant that the prices for car rentals and used cars – if Hertz were to sell inventory – would rise.
Hertz shares were delisted from the New York Stock Exchange, but continue to exchange ownership over the counter (OTC).
In January 2021, there was another showdown between Wall Street and retail investors. The big guys have bet against video game retailer GameStop, but Reddit posts and Keith Gill’s YouTube videos have prompted hundreds of thousands of small investors to band together and defeat the Wall Street short sellers.
Last week, activist investors – on May 26 alone and on both sides of the Atlantic – created two giant oil companies; ExxonMobil and Chevron – embrace climate change and bow to their desire to go greener.
Technology is disrupting the financial world. Cryptocurrencies, NFTs, Chinese Digital Yuan, etc. threaten to destabilize the existing global financial order. Retail stock investors have used technology to fight the mighty tyrants of Wall Street.
India could be on the brink of the same. Last year an unprecedented 10 million – one crore of new demat accounts – were opened by people with cash. If we assume that everyone puts in a lakh, that means that a trillion rupees, or about 0.5% of India’s GDP, was injected into the stock market, ironically, at a time when India is struggling against pandemic and thus experiences negative GDP growth.
Read also: BSE chief reveals historic increase in accounts opened on BSE
In life, if knowledge is power, information is money on the stock market. The power of information at your fingertips, that is, on the mobile, is the source of this retail boom.
Brokerage is all about churning out data. Before the digital age, you had to buy a company’s prospectus, audit and financial reports and comb through them. But today, let’s say you are interested in an IPO. To know everything about the company, just type in its name on a search engine. There are dedicated financial portals that not only go through every piece of information about each business, but turn it into analysis.
Real investment is even easier. Just click on a few links on your bank’s portal, or on apps like Zerodha, Religare Dynami, ShareKhan etc. and voila, you become a shareholder in seconds.
Entertainment is also fueling the rush. In early October 2020, Hansal Mehta’s brilliant 1992 Scam series was released on SonyLIV and quickly became cult. As I wrote earlier, not only does it tell a compelling story, but it’s also a crash course in the stock market. I know at least one person who jumped into stocks after watching the show. I’m sure there are thousands more like him.
Is it any surprise that nearly all IPOs since the pandemic, including those with risky numbers and litigation like Macrotech or the Barbeque Nation restaurant chain that have little profit margin in a foreclosure, have reaped a windfall for investors with rising stock prices?
Ask any seasoned investor and they’ll tell you that people who invest without sufficient knowledge of the market will create bubbles, the bursting of which will annoy investors.
The problem is, most new investors don’t understand the difference between “trading” and “investing”. They are drawn to the same greed, that is, the ability to make quick money through commerce, which has taken Harshad Mehta to prison.
500 years ago, when the Dutch East India company was denied a loan by the banks, it got the idea to go directly to individual investors and offer them a “share” in the company. They unwittingly invented “stocks” and therefore the stock market and became what is believed to be the largest company to ever exist in recorded history.
* The United Netherlands East India Company, founded in 1602, is the world’s first stock exchange.
An image of a bond issued by United Dutch East India showing the first such investment to the general public.
Not much has changed over the past 500 years, at least not the basics. It’s always about “investing” – you put your money where you say it is to lend money to promising businesses, and staying invested for months or years. By expressing your opinions at shareholder meetings, you help them grow. This behavior has contributed not only to global growth, but also to advanced science and technology.
Often these ideas are overturned by the big players in the financial markets who manipulate the differences between “negotiating” and “investing”. They made the financial system overly complex with unethical ideas like short selling, that is, investing in a company’s bankruptcy, which two hedge funds – Melvin Capital and Citadel – were doing. at GameStop when retail investors took them to cause them a total loss of $ 12.5 billion in January. Where the Occupy Wall Street movement has failed, retail investors succeed by banding together.
Thus, the influx of small currencies by millions of retail investors creates a balance against intimidation from the big ones. And since every investor owns, she can voice their disagreement by pointing out issues that don’t align with individual, national, or global values, just as activist investors did to ExxonMobil and Chevron on May 26.
In India, the 2013 Companies Act and regulations such as proxy advisory firms regulated by the 2014 Securities and Exchange Board of India regulation (research analysts) have contributed to shareholder activism. The emphasis on corporate governance has also contributed to the cause of investor activism.
Add to that mix 10 million new stock investors and you know that like in the old animated movie where a school of small fish band together to fight a big one, a major consolidation of retail investors could lead to major upheavals in the market. Indian financial sector. .
Hertz saw hope in the action of retail investors and decided to fight to turn the tide. They recently started proceedings to come out of Chapter 11 bankruptcy. This fairy tale had a perfect ending – not only does Hertz continue to exist, but many small investors have reaped huge windfall gains for their investment.
With tens of millions of retail investors, Hertz and GameStop moments in India may well be on the horizon.
Satyen K Bordoloi is a scriptwriter, journalist based in Mumbai. His writings have appeared in numerous Indian and foreign publications.
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