Making money in stock markets—a fantasy play or a dream worth chasing?
In the recently concluded Indian Premier League (IPL), Gujarat Titans outfoxed other franchisees. Before the tournament began, hardly anybody would believe you if you predicted that Gujarat Titans would lift the trophy in their debuting series. By the way, betting on who will win is gambling.
Is investing in stock markets a skill or a gamble? For many, it’s a skill when markets are doing well and a gamble when indices are losing ground. Well, in reality, the success of stock market investors depends primarily on two things—their understanding of risk and composition of their portfolio.
Here’s what sets gambling and fair-play apart…
Predicting the outcome of a sports game is speculation (since it depends on chance) but forming your own team and participating in a Fantasy Sports (FS) isn’t. Various High Courts have passed judgments stating that making a virtual team is the key to succeeding in a fantasy sports contest and it requires skills and understanding of the game. Even the Supreme Court has reaffirmed these judgments.
Similarly, inferences of IIMB and Cartesian research as well as the findings of Massachusetts Information Technology (MIT) and Columbia University concur—fantasy sports contest is a skill-dominated play.
You might be surprised to know nearly 16 crore Indians participate in fantasy sports but only 9 crore Indians have a demat account. What makes fantasy sports more popular than stock markets in India? And what are the key takeaways for the entire stock market ecosystem?
Let’s first understand the FS market in detail.
Alongside IPL, the success of Fantasy League powered by Dream 11 might have raised many eyebrows.
Dream 11 ran its commercials in two genres this season—one encouraged viewers to think big, with its popular campaign You are not alone if your dreams are big! While the other encouraged people to form their own teams on Dream 11, irrespective of how exciting their existing hobbies are.
FS market fact check…
- Close to 200 Fantasy Sports Platforms (FSPs) operate in India
- According to Federation of Indian Fantasy Sports (FIFS), Indian FS market is expected to grow 4.7 times between FY21 and FY25 to Rs 1.65 lakh crore
- 88% FSP users are in the age group of 18-40
- 70% FSP users are male
- 80% of FSP users participate in free contests—a point to be noted
- Tier-2 and Tier-3 cities account for 50% of transactions on FSPs
- Cricket accounts for 85% of the industry’s revenue
You see, FSPs are riding on the success of cricket and it’s not the other way round. That said, the popularity of fantasy sports contests amplifies the popularity of the real-life sports. A joint report by FIFS and Deloitte suggests that 60% of FS users watch real-life sports more closely than before as a result of fantasy sports contests.
Similarly, the stock market and its investors have a two-way interaction—more people join the bandwagon when markets are strong and in turn that makes investors follow markets more avidly.
The trouble starts when markets are under the weather. Hence it’s crucial to now juxtapose the Journey of a FSP user vis-à-vis that of stock market investor.
Journey of a FSP user
Journey of a stock market investor
Now you might be wondering why we didn’t use the same flow chart to map both the journeys.
Well the reason is, the journey of a FSP user is somewhat linear but that of a stock market investor isn’t to the same degree. It’s far easier to acquire a customer during strong market conditions when the sentiment is upbeat. However, his/her further progress depends on his/her prior experience and the level of understanding of markets and associated risks.
Please make no mistake, 80% FSP users participate in ‘free contests’; it means they have nothing to lose even if their virtual team selection is disastrous. But stock market investing is not a fantasy play. Here, profits and losses are real. Some manage to make their dream come true while for a few others, making money in stock markets remains a pipedream.
And if the stock broking companies were to bare it all, majority of them might report Futures and Options (F&O) trades as the largest contributing segment in their retail brokerage revenues. No wonder then the proportion of inactive customers rises quickly as soon as the markets hit a rough patch and the going gets tougher. Is this a reason why the broking industry has a seasonal revenue stream?
The key takeaways are rather straightforward…
Of 16 crore FSP users participating in fantasy sports, nearly 12.8 crore (i.e. 80%) aren’t ready to risk their money even when their skills can earn them money. That underscores the risk appetite as well as the risk tolerance of participants. Should stock market ecosystem draw parallels?
If so, helping investors understand risks associated with investing and following the handholding approach through all market phases is crucial.
You may also like to read: Bull markets or bear markets? We don’t care markets
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