This stock shoots up 300% from March low amid retail frenzy. Red flags go up

Mumbai: This stock has jumped nearly 300 per cent from its March lows and has been a direct beneficiary of the surge in the number of retail investors amid the Covid-19 lockdown.

The company is 5paisa Capital, the only listed company in the discount broking space. Analysts said it remains to be seen if the gains sustain going forward.

The stock has risen 295 per cent from its March lows, and it is up more than 83 per cent on a year-to-date basis. It scaled its 52-week high of Rs 375.65 last Friday.

While Nirmal Jain’s IIFL group-backed 5Paisa does not have a directly comparable listed peer, shares of companies such as ICICI Securities have also seen good bounce. The stock scaled a record high of Rs 568 last week, and is up 31 per cent so far this year.

Last week, 5Paisa Capital reported first-ever quarterly profit since its 2016 launch. It reported a bottom line of Rs 2.7 crore for June quarter, compared with a Rs 55 lakh loss posted for the year-ago period.

The company said income for the quarter rose 20 per cent owing to improved trading activity by existing customers, a surge in new client acquisitions and higher cross-selling of financial products. At the same time, it managed to control expenses, recording just a 3 per cent quarter-on-quarter growth.

“We recorded strong revenue growth backed by improved trading activity and successfully curtailed expense growth. We also acquired over 1.6 lakh customers, the highest acquisition in a quarter,” Prakarsh Gagdani, CEO of 5paisa Capital, said in last week’s earnings release.

“With the pandemic accelerating digital growth, millennials are thronging capital markets, buoying the stock market. We are entering a new era of investing and are likely to see incredible growth in the coming quarters,” he said.

Benchmark Sensex has risen 46 per cent from its March lows as easy liquidity kept market sentiment upbeat globally and gave the new get-quick-rich investors their first taste of lucrative profits.


Of the 615 companies, which have announced June quarter shareholding data so far, around 68 saw over 100 basis points hike in stakes by individual shareholders. Fifty-five of these stocks have delivered double-digit returns since April 1, data compiled from corporate database Ace Equities showed.

Independent analyst Ambareesh Baliga said around 35 lakh new investors have started trading in the market over the last four months. Assuming an average investment of Rs 1 lakh per investor, it’s a huge spike in retail investors’ interest.

“Not many businesses were running and making money amid the pandemic. We just had essential services, and among a few others, the online broking space gained traction as people stayed at home,” Baliga said.

However, he is not confident this sudden interest for broking stocks is here to stay. “While discount broking is the flavour of the season, will there be long-term wealth creation in the broking space? We don’t know yet,” he said.

Baliga said many financial services majors such as Motilal Oswal, Edelweiss Group and the likes had broking as their key activity years ago, but they have since branched out to other areas under the financial services umbrella in the later years.

“They had to diversify as broking was becoming more and more competitive and did not have much differentiators,” he pointed out.

There have also been concerns that many first-time traders are venturing into the market with hardly any understanding of it and they consider it akin to gambling and speculating, a trend which could prove risky for many.

Dalal Street veteran Vijay Kedia sounded an alarm that the Indian stock market was getting crowded with get-rich-quick investors, who popped up during the nationwide lockdown.

There are concerns that the surge of inflows from retail investors was likely creating an option for profitable exit by domestic and foreign institutional investors. Domestic equity benchmarks have continued their uptrend so far in July, even when these fat-pocket investors have been on a selling spree.

Jimeet Modi, Founder & CEO, SAMCO Securities & StockNote, said retail investors, Indian version of Robinhood traders, who are at home during the lockdown are tapping prices of penny stocks higher.

“It is quite likely that they may also have invested in frontline stocks. But, their high interest in penny stocks is quite visible, and it is frightening. A handful of these penny stocks have now started reversing the trend and are hitting lower circuits,” Modi said earlier this month. “It’s time to be cautious,” he warned.