Domestic Investors Flock to Indian Stocks as Gold, Real Estate Lose Luster

Rajeev Sakhuja has kept a hectic schedule in recent months as he makes scores of presentations in Delhi and surrounding towns about why and how to invest in equities.

The investment adviser has an attentive audience as traditional avenues of gold and real estate lose their luster and as stock markets trade at record highs. Tens of thousands of ordinary Indians are now investing more money into mutual funds.

“That old-fashioned investment, people are not interested. So where should they switch, where to invest, what to do, nobody has any clue,” said an upbeat Sakhuja, whose firm, PTIC India, is doing brisk business.

India’s stock markets have been among Asia’s top performers this year. The benchmark BSE Sensex has gained more than 16 percent since the start of the year, buoyed by optimism about the world’s fastest-growing economy. But unlike the past, when foreign investors were at the helm of a bull run, there has been a huge pickup in domestic investment.

That’s good news, say economists. The government has long fretted that most of the country’s household savings go into unproductive assets such as gold and real estate and has been trying to nudge domestic investors toward channeling more of their savings into equities, a source of corporate finance.

There is a huge market to be tapped. The total investment of Indian household savings into stocks is much smaller compared with those in many other countries.

Gaurav Mehta, portfolio manager at Ambit Investment Advisors in Mumbai, said the rising interest of domestic investors is part of a structural shift that signals a more modernizing and transparent economy.

“Till five, six years ago, physical assets were a good two-thirds of all household savings,” Mehta said. “That ratio now has swung in favor of financial assets.”

‘More formalized’ savings

The trend has been accelerated by a crackdown on the black economy. Last November, the government banned high denomination notes in a bid to flush out illegal cash.

“As savings become more formalized, then obviously you don’t need to park them in spurious places like land, real estate, et cetera,” Mehta said. “So a lot of this money is now moving into financial assets.”

And to tap that market, the mutual fund industry is reaching out to potential investors through television advertisements, social media and billboards, pitching the funds as attractive alternatives.

The sales pitch is not difficult: In the last four years, the Sensex has climbed 60 percent, whereas gold has fallen by 5 percent, real estate markets are down sharply and declining bank interest rates cannot keep pace with inflation. And the government is offering favorable tax policy for investors in mutual funds.

Most small investors are opting for mutual funds, hoping to grow their savings to beat inflation.

After hearing from friends about investment avenues in stock markets, Kumar Gautam, 31, opted for a $50 monthly plan. “Bank interest rates were coming down 4, 5, 6 percent … people told me to opt for a monthly plan. I will have tax savings and get better returns,” he said.

Some, like Bharti Gupta, 33, have been bolder and chosen to trade directly in stocks. “I studied some books, there are courses also that I joined, and there is a WhatsApp group that I have joined, which has some 150 to 200 people, so that is also quite helpful.” She said she had been able to make her investment grow quite well.

And whereas most investors lived in big cities in the past, small-town residents are also investing in equities now.

Vidya Bala, head of research at FundsIndia.com, said one-third of the firm’s customers now are from outside the country’s 15 big cities.

According to Bala, even in very remote places where there are no financial firms or mutual fund offices, people are investing online. “People who are away from the happening cities can also have access to good, regulated products as long as they are digitally aware. This is really set to take off,” Bala said.

Reassurance

Economists say the greater participation of domestic investors is also reassuring for a country that has long worried about the predominant role of foreign money in equities, because that used to play a decisive role in the movement of stock markets.

Meanwhile, ordinary, first-time investors are simply keeping their fingers crossed, hoping that stock markets will continue to do well in the long run and that their investments will be safe.
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