Direct investments in the stock market appear to have found favour among retail investors despite the volatility brought on by the Covid-19 pandemic and the ensuing lockdowns. In the four months since the nationwide lockdown was first enforced, the number of individual investors opening accounts for direct investments has surged even as net inflows in equity mutual funds plummeted.

Sure, increase in equity participation augurs well for a country like India, which has a young demography and low capital market penetration. However, direct equity investments may be far from ideal for investors who lack necessary proficiency and wherewithal, and who would be better off investing through professional avenues such as mutual funds.

Direct investment requires proficiency in stock selection…

The domestic stock market has over 5,000 listed stocks, which makes selecting the right stock for investment a herculean task. Then, there is large variance among stock performers and under-performers across periods and market phases. A look at how the top three performers and under-performers each on the Nifty 50 have fared since calendar 2016 alone indicates how difficult it is to identify the top performers within a stock universe of just 50 stocks, which incidentally have the largest market capitalisation.