By DK Aggarwal
Unlike the popular perception, the growth in equity penetration in India has not really been very slow. Data for recent years shows things have changed quite a bit over the past few years.
Of course, we need to grow much faster when compared with other developed countries. In India, only 10% of the population has exposure to financial markets, whereas it is 90% in the case of many developed economies. That’s a huge gap.
The main reason behind this is the lack of awareness and confidence on financial products. Weak financial literacy has led the average Indian investor to view equity with suspicion and caution.
Persistent endeavours of the government, the markets regulator and the broking firms have helped increase financial literacy in the country. Stock exchanges along with the broking firms have been organising regular investor awareness campaigns.
A wave of reforms implemented by the Modi government is making the financial asset class roar, but the numbers are giving a completely different perspective. Because of this, there has been a rapid shift in saving patterns of investors from traditional investment avenues such as gold, real estate and bank deposits to equities and mutual funds.
Also disruptions like high technology-backed discount broking platforms and availability of high-speed mobile internet have helped bring smaller towns and villages into the equity loop. A big increase in the number of mutual fund folios, domestic retail inflows into financial markets and a spurt in demat accounts, all go on to signal a strong shift towards financial assets.
The number of demat accounts has increased from 18 crore in 2011 to approximately 36 crore at the end of June, 2019. Asset under management of the Indian mutual fund Industry has grown from Rs 6.28 lakh crore as on September 30, 2009 to Rs 24.51 lakh crore on September 30, 2019; swelling 4-fold in 10 years. The number of mutual fund folios has grown from 47,598,163 on March 31, 2009 to 83,771,689 on June 30, 2019.
A strong financial market with broader participation is essential for any economy to develop rapidly. With India’s growth story unfolding, there is a requirement for companies to get easy access to equity capital, which can help ensure that the benefits of economic growth get distributed to the bottom of socio-economic pyramid.
With the push for financial inclusion, a new set of participants have bank accounts now. There is a significant influx of middle-income groups from physical assets into financial markets.
Thanks to strong regulatory measures, greater transparency will help add a new dimension and ensure more transparency in financial markets, which will in turn help bring more investors into its fold. Mutual funds and the equity market will play a pivotal role in the next stage of financial inclusion, helping better penetration of financial assets.
At least 30% of India’s household savings can be channelled through equities, mutual funds and other investment avenues to improve financial markets.
The equity segment currently accounts for more than 75% of market activity in India. Among all, equity is the most powerful medium for wealth creation and financial security the world over. With necessary prudence, it can be extremely rewarding to hold equity for long periods. The longer the holding period, the greater is the probability that the investment would deliver solid gains.
(DK Aggarwal is Chairman & Managing Director of SMC Investments & Advisors)
Source: Economic Times