Happy 2025: Five new-year resolutions for smarter equity investing

Read this | Bullrun, bullshit and other market lessons of 2024

The year saw overhyped names crash and underdogs rise. Public frenzy turned bitter for many, while those who moved with precision thrived. As investors look ahead to 2025, here are five resolutions to safeguard capital and sanity in an unpredictable market.

Resolution #1: I will not chase trends blindly

If 2024 proved anything, it was the triumph of Davids over Goliaths. Small and midcap stocks enjoyed exceptional demand, with the Nifty Smallcap 100 index gaining 24%, trouncing the broader benchmark. Yet, the rally wasn’t universal. A quarter of small-cap index constituents ended in the red, including familiar names like Bata, Tata Teleservices, Zee, Jyothy Labs, and PVR.

Public sector enterprises told a similar tale. The Nifty PSE index surged 22% last year, but in the second half, all constituents except HPCL posted losses. The message was clear: trends can lead to blind alleys. Spot opportunities; don’t chase fads.

Resolution #2: I will not be taken in by hype

Ola Electric’s blockbuster initial public offering (IPO) was a textbook lesson in market frenzy.

The ₹6,154-crore issue in mid-2024 unfolded like a much-hyped Tollywood hit—featuring a larger-than-life protagonist, a cultish following, and mass hysteria. The mega issue, India’s first EV startup to go public, was oversubscribed 4.27 times, with shares soaring to the 20% upper circuit on debut. But the excitement didn’t last. By the year-end, the stock had shed 6%.

Read this | A new year, new trends, and five new market opportunities in 2025

Even so, Ola Electric fared better than some other overhyped peers. Honasa Consumer, the parent of Mamaearth, debuted as the first D2C (direct-to-consumer) firm to list on Dalal Street in late 2023, while drone-maker ideaForge Technology launched its IPO earlier, drawing over 100 times the subscriptions.

By the close of 2024, Honasa had plunged 40%, and ideaForge had lost 27%. For investors, the lesson is clear: not all that glitters turns to gold.

Resolution #3: I will not be a BAAP (buy-at-any-price) investor

For those wary of overhyped startups and their exuberant backers, India’s largest-ever IPO in October might have felt like a breath of fresh air. 

Hyundai India, the country’s second-largest carmaker, brought a pedigree of corporate excellence. With FY24 sales of 7.77 lakh vehicles, revenues of ₹69,829 crore, and a net profit of ₹6,060 crore, the ₹27,870-crore IPO was a triumph of substance over style, sailing through with over 2x subscription.

Yet, by year-end, the stock had dipped nearly 1%.

The story is familiar for investors who focus on stellar business performance but overlook valuation. There’s nothing fundamentally wrong with marquee names like Hindustan Unilever Ltd, HDFC Bank, Titan, or Nestle India. But paying Nvidia-like multiples for consumer staples can only end one way—your portfolio dressed in a rather unflattering shade of crimson. The lesson? Great businesses aren’t always great investments at any price.

Resolution #4: I will not rush in where angels fear to tread

Remember the two-outlet bike dealership that managed to attract bids worth ₹4,800 crore for its ₹12 crore SME IPO. The outcome? A dramatic 50% plunge in the stock last year.

Read this | Indian stock markets: Navigating bullish trends, valuation risks, and what’s next in 2025

Or take the Noida-based IT firm that sought to raise ₹44 crore from SME investors. It earmarked nearly half the proceeds to purchase software from a company with a paid-up capital of just ₹1 lakh and no financial filings since 2021. The markets regulator had to intervene and scuttle the IPO.

The SME segment was a whirlwind of action in 2024, drawing investors eager for outsized returns. For many, however, it turned into a march to the guillotine.

Investing in SMEs demands specialized skills, a hefty risk appetite, and impeccable timing. Even seasoned investors tread cautiously in this volatile space, making the exuberance of retail investors all the more perplexing. The lesson is clear: enthusiasm without due diligence is a recipe for regret.

Resolution #5: I will not play games which I can’t win

Here’s a sobering statistic from a recent report by the Securities and Exchange Board of India (Sebi): Over 93% of more than 10 million individual F&O traders lost an average of ₹2 lakh each between FY22 and FY24, amounting to a staggering ₹1.8 trillion in aggregate losses, including transaction charges. than 75% of these traders reported an annual income below ₹5 lakh. Despite the grim outcomes, the majority of these loss-makers continued trading.

So, who’s pocketing the profits in India’s derivatives market?

Enter the ‘fat cats’—proprietary traders wielding advanced algorithmic strategies and high-frequency trading (HFT) firms. Wall Street titans like Jane Street, Millennium, Citadel Securities, and Jump Trading have turned their gaze to Dalal Street, lured by the immense potential of India’s derivatives segment.

The allure is undeniable. Last year, Jane Street and Millennium were locked in a legal battle in a Manhattan federal court over allegations of two former Jane Street traders stealing a secret India options trading strategy. Jane Street disclosed that the strategy had generated $1 billion in profits in 2023 alone.

Sebi has tightened regulations on the F&O market since September, and the early signs of change are encouraging. 

Also read | Sebi’s meds do the trick in slowing retail options frenzy. Next dose in January.

But if you believe you can outsmart some of the sharpest minds in the world—equipped with advanced algorithms and supercomputers executing trades in microseconds—it may be worth reconsidering your strategy. Perhaps focusing on pursuits where skill and strategy alone determine success, like coaching chess prodigies such as Gukesh Dommaraju and Magnus Carlsen, would be a wiser choice.