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Indian households: Minimal exposure to equities
Aug 20, 2014


The past few months have seen domestic investors express interest in the Indian markets. That explains why domestic money is finding its way into mutual funds which appear to have pumped in thrice as much as FIIs in the past one month. However, if you look at the trend over the last five years, retail participation in equities has been abysmally low. Indeed, as can be seen from today's chart of the day, equities accounted for just 8% of the total financial savings of Indian households. The favourite continued to be bank deposits which formed a massive 48% of the pie. This is despite the fact that an 8 to 9% return from FDs is hardly anything considering the high inflationary environment in the country

Data Source: Mint
P&PF - Provident and pension fund, NBD - non-banking deposits, Ins. - Insurance

The reasons why participation in equities has remained low is largely a matter of perception. Many retail investors have burnt their fingers during the 2008-2009 meltdown and many consider investing in equities akin to gambling. But nothing could be further from the truth. Equity investing is all about following a disciplined approach. It means buying when prices are low and selling when they are high. The period post the 2008 crisis was the perfect time for retail investors to get into the market. But many had done so during the peak in early 2008 before the bubble burst and suffered losses. Now stock markets have once again begun to rise and this has seen more and more investors getting invested. But the point is that retail investors will need to remain selective about the kind of stocks they want to invest in and not rely solely on tips provided by brokers and friends.

This Chart Of The Day was published in The 5 Minute WrapUp - What will it be like for investors to revisit 1991?

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