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Have financial savings become immaterial?
May 14, 2014

Equities have sparked more attention than other asset classes owing to the former's outperformance in the recent periods. Thanks to the sticky inflation, the real return on asset classes like bank deposits are still lying in the negative territory. Sizeable money has flowed into gold and real estate. And therefore lucrative asset classes like gold, real estate, equities have become the flavor of the season. Seems that the Indian household is actively rebalancing its savings portfolio to seek inflation-adjusted returns!. That's because household financial savings as a percentage of GDP has been steadily falling till 2012.

The chart data sourced from Livemint shows that household financial savings fell from higher levels of 12% of GDP in FY08 to 8% in FY12. The ratio has hardly improved since FY12. Slowing economy and high inflation has played a major spoilsport. And therefore households were compelled to take resort to assets other than financial assets to protect their wealth. But not all the money that flow into various asset classes trickle down into the formal financial sector. Significant fall in savings can stall economic recovery. Hence the recent trend in household savings is definitely a matter of concern. Reason why the new government should try to address the inflation problem.

Data source: Live Mint & RBI

This Chart Of The Day was published in The 5 Minute WrapUp - What made Idea Cellular investors' delight over past decade...

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