The illusion of control: Why so many believe they can beat the market in India

Stock markets have an irresistible allure. The possibility of generating outsized returns entices countless investors into believing they have the edge over the market. In India, stories of rapid economic growth, booming tech sectors, and financial inclusion further fuel this belief. But how many investors consistently beat the market? The harsh reality: very few. Yet, the illusion of control – the tendency to overestimate one’s ability to influence outcomes – persists.

India’s digital transformation has democratized investing, allowing millions of retail investors to enter the stock market. But with this access has come overconfidence. From influencers touting overnight gains to retail platforms simplifying stock picking, many believe that beating the market is just a matter of effort and timing. But is it?

Firstly, Why do investors think they’re special?

At the heart of the illusion of control is overconfidence. Many investors, especially beginners, overestimate their ability to predict market movements. When early investments deliver positive returns, they mistakenly attribute this success to their own skill rather than luck.

But the reality is more complex. Market movements are driven by factors beyond individual control, such as macroeconomic shifts and geopolitical tensions. Behavioural finance further explains why many fall into this trap. Confirmation bias, for example, leads investors to focus on information that supports their pre-existing beliefs, while ignoring signs that contradict them. Herding behaviour pushes investors to follow the crowd, assuming that if others are doing it, it must be right.

A particularly common trap is anchoring, where investors cling to specific pieces of information, such as past stock performance, and base decisions on them—even when circumstances have changed. In a fast-growing market like India’s, optimism can easily cloud judgment, making it hard for investors to separate luck from skill.Secondly, is the India story fuelling the Illusion?India’s growth story has captured global attention. A rising middle class, rapid digital adoption, and government reforms have made India an attractive investment destination. The rise of platforms like Zerodha, Paytm Money, and Groww has empowered millions to participate in the market. With just a few clicks, anyone can buy and sell shares, often driven by the promise of “easy” returns.

This accessibility, however, has also fuelled the illusion of control. The India growth narrative emboldens investors into thinking that anyone who invests in the “right” stocks will inevitably win. But this optimism often overlooks the realities of market volatility, sector-specific downturns, and global economic challenges.

Thirdly, perfect market timing and stock picking are a myth

One of the most dangerous manifestations of the illusion of control is the belief in market timing – the idea that one can predict highs and lows and trade accordingly. Many retail investors in India think they can “beat the pros” by perfectly timing their trades. They also believe that picking individual stocks gives them control over their portfolio’s success.

But the data tells a different story. Time and again, studies have shown that even professional fund managers, with access to superior research and tools, struggle to consistently outperform the market. So where does that leave the average retail investor, often driven by social media buzz or limited information?

Fourthly, professionals struggle, too

Even seasoned professionals with years of experience and cutting-edge analytical tools struggle to beat the market. Take actively managed mutual funds as an example. Over time, very few consistently outperform their benchmarks. In India, mutual funds focused on blue-chip stocks have often been outpaced by index funds that simply track the broader market. This underperformance by professionals should be a warning to retail investors: if the experts can’t do it, what makes you think you can?

Market movements are influenced by a range of unpredictable factors, from inflation data to global supply chain issues. In India, sectors like IT and banking may perform well for years but could face sudden downturns due to global events. Predicting these shifts consistently is near impossible, and even top fund managers understand that a disciplined, diversified approach is more reliable than attempting to time the market.

Lastly, India’s growth story is not as simple as it seems

India’s economic potential is undeniable. Sectors like banking, consumer goods, and manufacturing have shown impressive growth. India is increasingly viewed as an alternative to China for global investors. However, if India’s growth directly translates into market outperformance is risky.

Many investors believe they can ride this growth wave by picking stocks from the “right” sectors. But markets don’t move in straight lines. Despite India’s long-term potential, individual companies and sectors will experience volatility, and short-term market movements will always be difficult to predict.

Conclusion: Let go of control to gain it

In the end, the illusion of control in investing is just that – an illusion. No one, not even the most skilled investor, can consistently predict or control the markets. But what we can control is our behaviour, strategy, and discipline. By focusing on long-term, evidence-based investing, we can avoid the pitfalls of overconfidence and give ourselves the best chance for success. In a market as dynamic as India’s, it’s easy to get swept up in the idea that anyone can win big. But remember: the market isn’t something to be conquered, only navigated.

(The author is Arun Chulani, Co-Founder, First Water Capital. Views are own)