In just four years, India's capital market has undergone a profound transformation. The number of demat accounts has more than tripled—from 50 million in 2020 to 185 million in 2024—marking a historic shift in retail investor participation. Propelled by mobile-first platforms like Groww, Zerodha, Angel One, and Upstox, investing has never been more accessible. These four brokers alone command 65% of the market share and nearly half of total industry profits.

But this rapid democratization raises urgent questions: Are new investors financially prepared to navigate the markets? And what happens when social trading—fueled by “finfluencers” and bite-sized content—replaces research-based investing?

Retail Boom, But at What Cost?

The increase in participation is not just anecdotal. Monthly SIP enrollments hit 6.6 million as of September 2024, channeling ₹24,000 crore into mutual funds. Yet while retail capital is pouring into markets, Indian banks are seeing a liquidity crunch. With deposit growth averaging 11.1% against credit growth of 16.8%, households are increasingly diverting savings from traditional deposits to riskier assets. This shift is reshaping the deposit structure of banks and straining the classical money creation model.

Ironically, this surge in participation comes at a time when only 27% of Indians are considered financially literate. Despite a 17% rise in youth financial literacy between 2016 and 2020, household investments in equities remain dismally low at just 4%—far behind Europe’s 12% and the U.S.’s 16%.

The Rise (and Risk) of Finfluencers

At the heart of this phenomenon lies social media. Platforms like Instagram, YouTube, and Telegram have become financial playgrounds, where creators explain market trends, recommend stocks, and even advocate for high-risk bets like cryptocurrencies. While some influencers aim to educate, others chase clicks with dangerous advice.

Case in point: in 2024, Tata Motors became a darling of social media investors, aggressively promoted across channels. But by Q1 2025, the stock plunged 45% from its peak, wiping out ₹2 lakh crore in investor wealth. Similarly, a frenzy around PSU stocks—once glorified by influencers—ended with 75% of them collapsing by nearly 50%. Today, those same voices are urging followers to “focus on quality” after leading them off a cliff.

The takeaway is that the Tata Motors case, along with the PSU stock example, serves as a cautionary tale about the dangers of relying on social media for investment advice. While social media can provide some information and insights, it should not be the primary basis for investment decisions. Investors should always conduct their own thorough research, consider their own risk tolerance, and consult with qualified financial advisors.

Social Media's Psychological Toll

Research backs these observations. A 2024 study by Sathya and Prabhavathi in the International Journal of System Assurance Engineering and Management shows that social media magnifies behavioural biases—herding, overconfidence, and misjudged risk perception. Investors influenced by online content often fall prey to hype, leading to irrational decision-making. The authors call for greater regulatory vigilance and investor education to curb this influence.

Another study published in the Asia Pacific Journal of Management and Technology surveyed 120 young Indian investors. While over half reported learning about investments via social media, 33% acknowledged being misled. Most were students and early professionals aged 18–30, underscoring that India’s new investor class is both young and vulnerable.

A Costly Lesson in Derivatives

Perhaps nowhere is the price of ill-informed investing more visible than in the F&O (Futures and Options) market. The number of individual traders has doubled from 42.7 lakh in FY22 to 86.3 lakh in FY24. But profits have remained elusive. Across three years, 93% of 113 lakh traders incurred cumulative net losses of ₹1.81 lakh crore. The culprit? Options trading—now accounting for over 99% of F&O activity. Only 7.2% of participants turned a profit, mostly institutional players and seasoned traders.

Where Do We Go From Here?

India’s investing revolution is both inspiring and alarming. The good news is undeniable: millions of new investors are entering the financial ecosystem, diversifying household wealth beyond gold and real estate. The bad news is that too many are flying blind—guided by trending tweets, meme stocks, and algorithm-driven content.

To sustain this momentum and protect investors, regulators must rethink the framework for financial influencers. Platforms should be held accountable for curating and verifying investment advice. Simultaneously, financial literacy must become a national priority—integrated into school curriculums and adult education programs alike.

Social trading has levelled the playing field. It has given the retail investor a seat at the table. Now, the challenge is to ensure they don’t get burned before they learn to eat.

Views are personal. Dr. Jayatu Sen Chaudhury is Professor of Finance & Analytics, and Dr. Jagriti Arora is Assistant Professor of Finance & Accounting at Great Lakes Institute of Management, Gurgaon