It was the FOMO, or Fear of Missing Out, that got Kanishk K.* to start investing in the stock market.

He told DW that as India battled the second wave of the COVID lockdown in 2021, he started noticing ads on Instagram featuring social media influencers giving money-making tips.

“I didn’t want to miss out on this — the way people were making money. That, I would say, is the first thing that got me into the market,” Kanishk said.

He explained how, after initially investing in mutual funds, he gradually moved to trading on the stock market.

Like a lot of amateur investors, he had no clue about the fundamentals of investing, but kept up with the market trends, “especially on Reddit,” the US-based social media platform, he said.

And in the beginning, “everything was doing great.”

Stock market euphoria during COVID

Saloni Puj* and Ishan Shah shared similar stories to Kanishk’s.

Both Puj, a media professional from Kolkata, the capital of West Bengal state, and Shah, who runs a cultural center that teaches art and music in the western city of Ahmedabad, also started trading in the stock market sometime around the pandemic lockdown.

“The market was doing so well it felt anyone who was making any money was making it in the markets,” Shah said, who added that he bought random stocks, sometimes based on the recommendations of others. “Weirdly, whatever I did, I kept making money.”

Puj took a more guarded approach.

“I knew that the market [was] in a euphoria stage, I was very aware of the bubble that was happening,” she said.

Then came September 2024 — and all three were hit hard when the euphoria bubble burst. After months of rallying, the market eventually corrected, followed by a monthslong slump.

Young retail investors enter market

For most Indians who started trading on the stock markets, the rally after the pandemic slump was a great time. It reflected the $275 billion (€250 billion) economic stimulus package Indian Prime Minister Narendra Modi’s government had injected in 2020.

During the lockdown, a lot of people had more time and disposable income, and many were influenced by the idea of making some quick and easy money.

“During COVID, people had surplus cash, and a large number of young investors entered the capital markets as retail investors,” said Sagun Agrawal, a derivatives trader in the Indian capital markets and a financial literacy advocate for women. “This was positive for the markets as it boosted liquidity and created investable funds for capital formation.”

Online trading has become more popular thanks to new companies offering low brokerage fees and easy access to credit. One such option is Margin Trading Facility (MTF), which lets traders buy shares by paying only part of the cost upfront. The brokerage covers the rest as a loan, with interest.

Why did the market fall?

National Stock Exchange (NSE) data showed that between March 2020 and March 2024, the number of registered investors in India almost tripled to 92 million.

India’s NIFTY 50 stock market index went from about 8,000 points in March 2020 to record levels of more than 26,000 points in September 2024. For the retail investors caught up in the euphoria, it felt like nothing could go wrong — until it did.

In the six months since September last year, Indian equities have lost more than $1.2 trillion in value. In February, the NIFTY 50 benchmark index was down 16% from its peak, and on its longest losing streak since 1996. It was the worst performing global market.

Small retail investors were among the worst hit.

“Many of these [retail] investors were uninformed and chased hyped-up securities, leading to froth in the market. As corrections took place over the last six months, these investors faced major financial setbacks,” said Agrawal.

Bijoy Peter, a senior partner at Bangalore-based Germinate Investor Services, said one of the reasons for the market correction was the disparity between the soaring valuations of corporate India and their declining earnings. India’s GDP growth had also slowed to 5.4% in the July-September 2024 quarter, he said.

He also pointed to a lack of government spending in infrastructure and other sectors at the time, as well as other global factors.

Foreign Institutional Investors (FIIs) started pulling their money out of India. China started implementing significant stimulus measures in its market, which contributed to money moving there, he said.

This movement of money out of India had a huge impact.

“When such a large sum moves out, the effect is massive because investors have to sell their holdings. Selling at that magnitude has a huge impact on stock prices,” Peter said. “As a result, the market began to fall.”

Peter added that a lot of positive developments initiated by the government have been overlooked by the market — including an increase in tax limits, measures taken by the Reserve Bank of India to inject liquidity into the banking system, as well as the government’s announcement of increased infrastructure spending.

Agrawal also noted that last September, the real sellers were Indian High-Net-Worth Individuals (HNIs) and high-value investors. They sensed that the market was overvalued and had limited scope for further upside, she said.

“The major investors pulled their money out of the market, causing the decline, while smaller investors were left to bear the losses,” one trader, who asked not to be named, told DW.

‘Trump presents India with unique opportunity’

While Indian markets have been navigating stormy waters over the last five months, things are starting to look up with the stock market experiencing significant gains last week.

However, investors remain cautious amid US President Donald Trump’s threats to impose reciprocal tariffs on India from April 2, calling India “a very big abuser” of tariffs.

New Delhi has said that it is in negotiations with the US to establish a trade framework addressing levies and market access.

Economist Dr. Surjit Bhalla, former executive director for India at the International Monetary Fund (IMF) and a member of the Economic Advisory Council to the second Modi government, said he is bullish on India as Trump “has presented India with a unique opportunity for reform.”

“We’ve never had a chance like this before, particularly in areas like trade, foreign direct investment, and other key factors that drive GDP growth and profits.”

“For us, this is a crucial moment to implement much-needed reforms, both in the external sector and domestically, including areas like agriculture,” Bhalla said. “This could be India’s opportunity to advance to the next stage of reforms.”

Small investors smarter now

Meanwhile, retail investors like Kanishk, Shah and Puj, having survived hard times in the past few months, are bracing for the possible impact of Trump’s threatened tariffs, while keeping their fingers crossed.

Kanishk said he is more cautious now after the slump, “taking the words of the finance influencer with a pinch of salt.”

Shah stopped trading about a year ago, sometimes reflecting on whether it was too early. “But seeing how stressed everyone is, I feel I might have dodged a bullet,” he said.

Puj has reworked her investment strategy altogether, she is staying put and buying only in small quantities when markets are down.

Having seen all her investments in the red not too long ago, she said she is wiser now, adding, “Going down is not so fun.”

*names changed on request

Edited by: Keith Walker