Are stocks and MFs bearing the brunt of gold?
In this issue:
» China stops buying European government debt
» US stock markets may witness another 1987-like selloff!
» Upto 7% of India's annual food production rotting
» More subsidies on petrol may be in the offing
» ...and more!
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But a lot of water seems to have flowed under the bridge over the past 5 years. To begin with high inflation and negative real interest rates on bank deposits dissuaded retail investors. Stocks, debentures and mutual funds too gave jitters after the stock market crash of 2008. Moreover, lack of clarity on policy issues made investors sit on the edge. The insurance and mutual fund industries in particular saw a lot of regulatory flux. As a result some investors chose to completely stay away from them. Stock markets too failed to retain confidence of those having been cheated by unscrupulous brokers. In the meanwhile, gold as an alternative asset class got prominence. That its inflation hedging quality is vital to every investor's portfolio became well known. Hence steadily investments started shifting from financial instruments to assets like gold.
Not that stocks and mutual funds were an overwhelming proportion of Indian household investments earlier. Together they were less than 15% of GDP in 2007. Unfortunately, lack of confidence in their safety and returns has reduced the proportion further by 2012. As per HDFC, mutual fund assets under management (AUMs) have dropped from 12% of GDP in 2010 to 8% by 2012. Clearly, the decline in savings in financial assets is not just to do with favoritism towards gold. Also, the shiny metal, though necessary, cannot serve all investment needs. Therefore to boost the flow of savings to financial assets, the need of the hour is better regulation and more incentives. This in turn will ensure more economic stability to India's prospering middle class. At the same time it will save Reserve Bank Of India (RBI) the trouble of managing forex volatility due to excessive gold imports.
Do you think better regulation and incentives for household savings getting routed to financial instruments is a must? Let us know your comments or post them on our Facebook page / Google+ page.
01:20 | Chart of the day | |
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Data source: RBI, Equitymaster |
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Up to 7% of the country's annual grain production goes to waste because of insufficient storage space and inefficient transport and distribution networks. So what is the solution? Some say that storage is not so much as a problem as distribution. Thus, one possible solution could be to liquidate the grain stock through additional allocations to the public distribution system (PDS). This would be to both APL (above the poverty line) and BPL (below the poverty line) families. The idea being to distribute grain before it decays. Others suggest a PPP (Public private participation) route to build storage facilities given how expensive they are to build. Food grains could also be used as part of workers' wages. Either ways, the government needs to pull up its socks urgently on this front. For no amount of monetary tinkering will bring India's inflation down unless such basic issues are not addressed soon.
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There are many options in front of the Indian government. Keeping inflation in mind, for the time being, the government can declare petrol as a regulated product. And compensate the companies for their losses. This would add to the expenditure of the government. Else, it can reduce the excise duty on petrol to compensate for the losses. In this case, the government would be losing on its revenue collection. Hence, both ways, fiscal deficit would come under pressure. And if, the government decides to go with the hike in petrol prices, inflation may again go out of the roof. What path will the government choose? We have to wait and find out. However, more financial pain seems to be in the offing.
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04:50 | Today's Investing mantra |
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3 Responses to "Are stocks and MFs bearing the brunt of gold?"
Ashok Vaishnav
May 11, 2012In spite of all hefty incetives, if Insurance has still not attained a respectable penetration across households, products related to financial markets can hardly be expected to have done any better.
In fact, by remaining a club of [relatively] few,finacial markets are yet to be percieved as 'safe' places for investment of [hard earned] money.
That is why Post Office Savings and [to some extent] bank deposits still rule the roost, irrespective whether they are better bets agianst the current and future inflation
Borkar
May 11, 2012
Now on Food Frains rotting. I recollect sometime back on a PIL,
Supreme Court asked the Govt "why it cannot distribute the
grains freely to the poor? And if I recollect correctly, the
Hon.Agri. Minister said this is not possible. He can allow the
grains tprot, he can allow the grains to sell in the
international markets below MRP but will not give it to poor.
What sort of insensitive people we have running the country? On
Wed,day I happen to see Telecast of Loksabha proccedings, where
the matter talked was on "urgent public interest matters".
There was it appears just enough presenty to continue the
proccedings. Out of 4 questions, 3 were related corruption
emanating from food, roads and one on law/order of naxalite
problem in Gadchiroli. What apathy on the part of our learned
and most vocal MPs and then they complain about the .......
select choices expressed by the public.
sunilkumar tejwani
May 12, 2012Many innocent savers have lost money in numerous schemes floated by various so called reputed business organizations which include ICICI, H D F C, Bajaj to name the few. Savers have been cheated by their Corrupt & self seeker advisers by mi selling unit linked products. By selling these products, investors are shying away from any investment products. The need of the hour is to completely ban front loaded financial products. Otherwise we will be second to none like united states of America where every retail investor is subsidizing fat pay cheques of greedy executives of numerous listed companies.