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With the unprecedented growth in the number of blockchain-based cryptocurrencies and a sharp spike in their holders and investors, governments worldwide have no other better option than launching Central Bank Digital Currencies (CBDC). China introduces Digital Yuan in January 2022 and within a month; India’s Finance Minister Nirmala Sitharaman announced the introduction of the Digital Rupee while presenting the Union Fiscal Budget in the Parliament. The Reserve Bank of India (RBI) will be responsible to issue and manage the upcoming CBDC.
The covid-19 pandemic resulted in the rapid digitalisation of products and services in almost every field and people’s incessant proclivity towards cryptocurrencies induced the government to roll out India’s plan for CBDC. As the majority of stakeholders now vouch for this initiative, the chances are very high that the Indian Digital Rupee will augur glad tidings for businesses and people in various ways. It will lead to efficient transfers of payments, faster settlement of funds, lesser downtime, low transaction costs, no physical damage, round the clock operation, and swift cross-border transactions.
Impact on stock markets
Since CBDC is going to transform a variety of commercial services towards positive orientation, trading and investment in the stock market will not be an exception. Unlike other cryptocurrencies which are considered quite risky due to their volatile nature and absence of any central regulation authority, the RBI controlled CBDC will be a safer and more authentic option for investors. Hence, public as well as private enterprises, including the listed companies are expected to invest in Digital Rupee and churn out a good ROI.
An upsurge in the demand for cryptocurrencies has enticed equity investors to look for companies that have direct or indirect stacks in cryptocurrency and they are empowered with better traction. Market insiders believe that Digital Rupee will appreciate faster than paper currency and companies would like to crack this opportunity. Such listed companies in Indian stock markets can create a bullish trend through a high influx of purchases of their stocks. Things that were witnessed by equity markets in the US in the past three years have fair amount of chances of getting replicated in Indian markets after the launch of Digital Rupee.
The influence of Tesla, NVIDIA Corporation, and AMD, companies that have directly or indirectly invested in cryptocurrencies, made a big impact on stock markets in the US. When Tesla bought $1.5 billion worth of Bitcoin and announced that the company will also receive payment in Bitcoin from the EV customer, its share price reached to new high, i.e., $709.44 in May 2021. Besides, investors prefer digital currency over flat money because the latter gets easily affected by inflation, monetary and fiscal policy. On the other hand, being new into the market, a digital currency approved by the government usually goes through constant appreciation, a feature that every investor looks for. That’s why at the time of making an investment decision, people will shortlist businesses that are directly or indirectly investing in digital currency.
Cybersecurity, a precondition
Before launching Digital Rupee in the market, the government of India, RBI, and all the other supporting institutions in this initiative must ascertain robust and foolproof cybersecurity standards. Being highly interlinked infrastructure, a virtual network is always vulnerable to hacking and other security threats. To ward off all these potential challenges, a top-notch security system is the prerequisite of the highly awaited digital currency of India. Besides, there is an indispensable need for high-speed internet and equally compatible telecommunication networks for the assured success of Digital Rupee.
Precautions and safeguards
As profits and risks are harbingers to each other, precautions and knowledge-based decisions are always suggested to investors and traders in stock markets. So, instead of following the majority, or herd mentality, one should pay heed to industry experts, follow his/her own senses, experience, and a dash of gut feelings before reaching to any decision. An investor must first understand the basics of the market and various segments like equities, commodities, currencies, derivatives and then he/she must start learning technical and fundamental analysis of stock markets. Every successful trader or investor happens to be a lifelong learner as they add new skills and learn from their mistakes by keeping a journal of their decisions and experiences. So, it’s high time for investors to keep themselves updated on developments in India’s official cryptocurrency.