Desperate retail investors drive India's options craze
The Securities and Exchange Board of India’s crackdown on social-media influencers peddling advice is a losing battle. Although nine out of 10 individual traders are losing money, retail investors can’t get enough of derivatives. A smartphone-led gamification of investing is complete.
It wasn’t always like this.
Until the early 1990s, financial markets and mavens never had a large sway over the country’s economy or public imagination. People kept their money at state-owned banks. Direct stock ownership was rare.
Those with surplus savings bought slips of paper from the Unit Trust of India, a black box of an investor that regularly paid 20%-25% as dividends on capital. That was the extent of middle-class Indians’ greed for yield.
Things began to change when the economy opened up. Harshad Mehta, a flashy Mumbai stockbroker, acquired the moniker of “Big Bull.” He became the first Indian to buy a Lexus LS400, and in early 1992 took out an eight-column newspaper ad with the headline: “Harshad Mehta is a liar,” implying, of course, that he was just the opposite.
By the end of that year, however, Mehta had been arrested for masterminding a huge securities scam. The erosion of public confidence in a market that had only recently started accepting foreign institutional money led to a slew of changes: electronic trading, guaranteed settlements, replacement of paper-based share certificates with account entries to stop counterfeiting, and — starting in 2000 — exchange-traded derivatives.
It is this last reform that has become too much of a good thing. The SEBI’s research shows that more than 80% of individual traders dabbling in options are men.
