Illusion of Control: Why Many Believe They Can Beat the Market in India

Stock markets have an irresistible attraction. The prospect of generating huge returns tempts countless investors to believe they have an edge on the market. In India, stories of rapid economic growth, a boom in the tech sector and financial inclusion further fuel this belief. But how many investors are consistently beating 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 tap into the stock market. But with this access has come overconfidence. From influencers making overnight profits to retail platforms that make stock picking easy, many believe that beating the market is just a matter of effort and time. But is it?

First, why do investors think they are special?

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

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

A particularly common trap is anchoring, where investors cling to specific information, such as past stock performance and base decisions on it—even when circumstances have changed. In a fast-growing market like India, optimism can easily cloud judgement, making it difficult for investors to separate luck from skill.

Second, does India’s story foster illusions?

India’s development story has attracted global attention. A growing middle class, rapid digital adoption and government reforms have made India an attractive investment destination. The emergence of platforms like Zerodha, Paytm Money and Groww have empowered millions of people to participate in the market. With just a few clicks, anyone can buy and sell shares, often driven by the promise of “easy” returns.

However, this accessibility has also fostered the illusion of control. The India growth narrative encourages investors to think that whoever invests in the “right” stocks will inevitably win. But this optimism often overlooks the realities of market volatility, sector-specific slowdowns and global economic challenges.

Third, perfect market timing and stock picking is 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 believe they can “beat the pros” by timing their trades perfectly. They also believe that picking individual stocks gives them control over the success of their portfolio.

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

Fourth, professionals also struggle

Even seasoned professionals with years of experience and advanced analytical tools struggle to beat the market. Take actively managed mutual funds for example. Over time, very few consistently outperform their benchmarks. In India, mutual funds that focus on blue-chip stocks have largely outperformed index funds that only 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 affected by a range of unpredictable factors, from inflation data to global supply chain issues. In India, sectors like IT and banking can perform well for years but face a sudden downturn due to global events. These changes are nearly impossible to consistently predict, and even top fund managers understand that a disciplined, diversified approach is more reliable than trying to time the market.

Finally, India’s development 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 seen as an alternative to China for global investors. However, India’s growth is risky if it translates directly into market outperformance.

Many investors believe they can ride this growth wave by picking stocks from the “right” sectors. But markets do not move in a straight line. 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: Give up control to get 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 behavior, 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 dynamic market like India, it is easy to get carried away thinking that anyone can win big. But remember: the market isn’t about winning, just navigating.

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