Tuesday, 4 December 2012

Invest in Stocks - Invest in Our Economy

Post liberalisation in 1991, India opened its doors to the world for investments. From then on there was no looking back for the economy. Many private firms and new businesses sprung up including many foreign firms setting up shop here. Also, many foreign investors including institutional investors started investing in our growing economy which accelerated the growth further.

The effect of this accelerated growth was increased comfort in
living standards and increase in per capita income that we enjoy today. Ours is a consumer centric economy contributing more than 60% towards growth. This trend of growth is not about to slow down anywhere in the near future.

Now let us see where we stand as investors in this growing economy scenario.

AMFI (Association of Mutual Funds in India) which has investors from corporates, banks, financial institutions, HNIs and retail investors states that in-terms of number of investors, individual investors account for more than 90%, but in-terms of the AUM (Assets Under Management), about 70% - 80% of assets are of investors other than retail/individual investors. This means, the participation of individuals in the market as investors is very low.

How can that be? Almost every sane earning person in this country invests his/her money somewhere. So how is the retail investments in the economy so low? Well, actually we don’t invest, we save..... and we earn some fixed interest on our savings annually!! And compared to what equity investments have to offer, the interest rates are low.

Even though the average income of the Indian has increased in these years, most of the people prefer to bank their money in Fixed Deposits, Gold, realty etc. This is due to mistaken perception of risk and fear of loosing money in the stock markets. Indian households tend to be overly protectionist in their financial matters and hence don’t look upon stocks as an investment option. This is a misconception amongst beginners to stock investments as we have explained in our post on Importance of Stock Investments.

The result.... Foreign investors, who invest here to take advantage of India’s growth story make a fortune from our soil while the participation of individual investors in our own economy is very meagre due mainly to improper understanding about investing in stock markets. Till 2012 Nov USD 19.78 billion is invested by Foreign Institutional Investors (FII's) in India. India has seen  about 16% - 20% of equity ownership by FII's in listed companies in India from the time of liberalisation till date. Whereas USD 108bn of investments is by AMFI of which USD 24bn is from retail investors in equity MF till march 2012. On a percentage basis, the retail investments constitute only 20% - 25%.

This has led to the situation where an aggregate of about USD 750bn of money from Indian households, finds its way to various savings instruments like bank deposits which form 50% of gross household savings, and  our stock markets are seeing investments from FII's who make a fortune out of the growth of our economy and our companies.

Question is, if FII's have so much faith to invest in our companies time and again, should we not have faith in our own growth story? What with world-class businesses started by Indians on Indian soil and the increasing transparency built-in to the trading and investing platforms, should we not be a little more optimistic about the performance of our own economy and our own companies and try to gain from their growth? Its easy! With a little bit of knowledge, awareness and faith in our economy we can augment our savings to a great extent with stock investments too and stand to gain a lot from the right mix of savings schemes and investments.

Of course you will have RupyaGyan to guide all beginners to stock markets in the process of learning to invest and finding good investment options in the stock market!!

We leave you with these thoughts to ponder...........!