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Last September, Sarah Swata, a thirty nine year old doctor from India, was scrolling on his phone when a Facebook ad caught his attention.
He saw an ad that was from Geojith Financial Services, or at least it claimed to be from Jeojith, which is a prominent brokerage in India. It's well reputed and they were offering him some special books and the returns were really high.
Alex Gabriel Simon is a Bloomberg Stocks reporter based in Mumbai. He spoke to Sarah Swatam who asked that we just use his first name because his case is under police investigation. On that September day, Sarah Swata clicked on the ad and was invited to join an exclusive WhatsApp group.
So, once he joined the WhatsApp group, there were seemingly employees of Giojeth giving him all sorts of advice and then he was asked generally what any regular brokerage would ask you, and they had a proper application process and he signed up with the app and the apps had the name of Jyojith. It had SEBI registration number. SEBBI is the capital market regulator in India. There was no sense of this being fake anywhere at all.
The so called advisors told Saraswata he could make easy money just by pressing a few buttons on their trading app every day, that they had a surefire buy and flip strategy. So Sarah Swata started sending small amounts of money, and soon the money he put in started multiplying on the app. Three hundred and seventy thousand US dollars became half a million, then a million, then two million dollars, all in the span of a few months.
He felt like he hit a gold mine, is exactly what he told me, and the money was growing to an extent where you wouldn't expect in a regular stock market scenario.
By December, he thought it was about time to cash in on his earnings, but when he asked to withdraw part of the money, things took a different turn.
They told him that since you have gained of more than one hundred percent on your investments, that he'll need an extra commission to withdraw that money. So he was asked to invest much more. He ended up pawning off his wife's gold jewelry to cover this amount, and by then he had already invested much of what he had had multiple personal loans as well as gold loans.
The firm kept coming back with excuses to ask for even more money. That's when Sarah Swata realized something wasn't right.
So he took an actual flight to the real brokerage, that is Joji, to their headquarters. He went there and talked to the employees about his investments and they immediately found out that he was being scammed. They looked at the records and there was no account under his name.
It was all a scam. The app was fake and the total amount he invested seven hundred thousand dollars, his entire life savings and more, it was all gone. And there are many retail investors likes Ariswata who hope to make a fortune after watching India's booming stock market produce some genuine millionaires, but instead they're tricked out of millions in life savings by scammers. Last year, some one hundred and fifty thousand people reported being victims of stock frauds,
and all time high in India. This is a concern not only for retail investors in India, but for the Indian economy.
More broadly, so when foreign investors see the retail friends, he has reached levels that people are willing to now put money into these scams. They are thinking this frenzy has gone too far. Maybe this is not a market that we should be in, and they've been selling in billions.
Welcome to The Big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, the Dark Side of India's retail investing frenzy. What's driving the surge and financial cyber scamps, and what does it mean for the future of India's boomings stock market. Up until last September, India stock market was on a tear.
The benchmark nifty to fifty index posted gains for nine years in a row. Its growth overtook major markets across the world. It even outperformed the S and P five hundred for most of last year, and.
The rally has really picked up pace in the last five years. After COVID there was the monetary policy stimulus. Growth was really going about trend and all of this had led to a lot of gains in the market, especially in small and midcaps, where retailers were really pouring their money into.
Shares of companies that went public last year surged by an average of more than thirty percent in the first month after their IPO. That's more than almost twenty four percent globally, and the country's unprecedented market rally drove tens of millions of Indians to stocks to grow their wealth.
If you go into social media, there are so many stories of people who became millionaires from investing in the market. Retail investors have started to believe that this is easy and that the Indian market would keep rising every year like it did in the last nine years.
Today there are more than one hundred and thirty million unique trading accounts, that's almost triple the number five years ago. Retail Investors directly and through mutual funds currently own about eighteen percent of the inn market, a record high, and Alex says there were several factors that all came together to drive this retail boom.
There was a flood of cheap Chinese phones that have come into the market, and along with that, billionaire Mocation Bani launched Giovich's his telecom company, and that launch was with free voice calls as well as dirt sheep data, and that really gave access to Internet to a lot of people in India, going deep into the hinterlands.
On top of this, discount, brokerages popped up to offer zero fees, similar to robin Hood or Interactive brokers in the US. That made it easy and affordable for a lot of Indians to just open an account and start trading. And it's not just Indians who've been jumping into the capital markets. As one of the fastest growing economies in the world, India has drawn the attention of top business leaders, from Apple's Tim Cook and Tesla's Elon Musk to veteran
emerging markets money manager Mark Mobius. Last year, Mobias suggested global funds should allocate at least fifty percent to Indian stocks.
The pick for me is India.
India is the place. Even though India's come back a lot and it has even at some point outperformed the US market, India's still got a long way to go. It's a message India's Prime Minister Noarendra Modi has been peggybacking on Mobius does a park explore. Mody touted the fund manager's call in a speech last October and suggested that other global funds should invest heavily in Indian stocks
to capitalize on the country's market strength. But despite this excitement and optimism for India's stock market, a darker side to the retail investor frenzy has emerged. All this investment activity by ordinary Indians has caught the eye of cyber criminals and fronsters over the past several years. Now India is being targeted by modern trading scammers at alarmingly high rates.
Cybersecurity firm Cloudseek came out with a report that said India is one among the top five countries which are being targeted by cyber criminals in very sophisticated scams. A lot of countries went through a gradual change where they started with computers and then moved to laptops and mobile phones, but in India it's all quick and people are not really digitally literate, and all of that has made India very vulnerable when it comes to cybercrime.
Government data shows that last year there were more than four hundred stock market linked scams reported every day, amounting to more than one billion dollars lost. So far, less than ten percent of that money has been recovered. Ali says that's likely only the tip of the iceberg.
So the people getting scammed are unlike what you would suspect. It's not just maybe the old people or uneducated people when I'm talking to brokerages whose apps have been coned or other victims. It's coming from all walks of life. There are people who are educated, people who are uneducated, coming from Tier one cities, tier two cities, as well as deep into the villages in India where earlier there
was barely access to internet. But now they're being scammed and lured into stock market link scams.
And recently the market's taken a turn, raising concerns that these stock linked scams may have played a part in denting consumer confidence. Well, stocks in India have wrapped out there over a trillion dollars from their market bellue and global fund managers are also not in any rush after the break the Risks investment scams posed to India stock market. And what does the recent shares plument mean for Mody's
ambition to sell India stocks to foreign investors. After an unprecedented nine year rally, India's benchmark stock index has experienced a recent downturn. It saw up to a sixteen percent decline from September last year to early March. Some popular stocks have fallen as much as fifty percent from their peak.
Bloomberg reporter Alex Gabriel Simon says that was partly driven by worries about slowing economic growth and as terarif risks royal global markets, but he also says the surge in financial cyber scams have played a role in the recent decline.
What these scams do is make people who have been scammed wary of investing in general, even when they are now putting money into legitimate trading apps, and that sentiment, if it prolongs, might lead to a break in the broadening investor base we have seen in India.
Right of these scams has put pressure on Runder Modi's government to do more to protect investors.
You could clearly see that they're trying to do something to stop this, and you can see that they've been increasing outreach to fix this issue in certain parts of the country. When you call someone, the caller tune on the other side is a warning that there has been cyber scams going on. Do not share OTPs with anyone, do not make these instant payments to people who are not registered entities.
And at the same time, the Indian government has been trying to tackle another growing issue, the rise of financial influencers on social media, or so called influencers. And while influencers aren't necessarily fraudulent, they often lack professional training and some don't disclose sponsorships or financial ties, and that's a concern India's regulators are trying to address.
So SABEE has come out with numerous rules to contain the rise of influen conswers in India. They have made it illegal for them to have affiliate links to entities managed by the regulator. They've also banned people from selling stock tips in particular, and SABIE has also, according to our reporting, stepped up their surveillance of social media platforms.
Alex says the government's measures to date have had some impact. The number of fraud complaints are slowing, but there's far more to be done.
So consumer confidence is everything for an economy, and people losing money is never good, even when you're looking at demand for products or just confidence to invest. India is at a stage where it's trying to widen or broaden its investor base and that has now started to increase
and it is coming at a time. These camps are coming at a time when India is going through that journey of transformation, of financialization of savings, and this can be a road break to that if not contained on time, If people are now worried to invest in the market, then the strength of the domestic investors could come into question, and that is a big risk for the Indian equity market.
And alex What about foreign investors? Would they come back?
Foreign investors are always affected by the news flows coming from a country. The sentiment is a factor beyond valuations or earnings. So when foreign investors see the retail frends, he has reached levels that people are willing to now put money into these scams. They are thinking this frenzy has gone too far. Maybe this is not a market that we should be in, and they've been selling in billions.
Modi's large plan is to build India into Vixit Barret which means developed India, and that is his vision for twenty forty seven when India attains one hundred years of independence. But that requires more digital literacy, that requires people to build wealth, that requires people to move into more sophisticated investment plants, and these scams proliferating does not sit well with these plans.
As for Sarah Swantam, Alex says after reporting the case to the police, he still has no idea who was behind the scam, and he's still trying to figure out if he can get his money back.
He's really traumatized about this whole incident and was even finding it hard to talk about it. He told me, this is an incident the memory of which he's trying to wipe off from his brain.
This is the Big take Asia from Bloomberg News. I'm wanh. This episode was produced by Naomi and Young Young. It was edited by Grace Jennings ed Quist and Catherine nine. It was fact checked by Young and Naomi and mixed and sound designed by Taka Yasuzawa. Our senior producer is Naomi Shaven. Our senior editor is Elizabeth Ponso. Our deputy executive producer is Julia Weaver. Our executive producer is Nicole Beemster.
Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, please make sure to subscribe and review The Big Take Asia Wherever you listen to podcasts. It really helps people find the show. Thanks for listening, See you next time.