Equity Culture Needs To Reach The Masses

While speaking of value creation in India, Sudip Bandyopadhyay, MD & CEO, Destimoney Securities stresses on the higher wealth creation ability of the Indian capital markets, and the need for need for investor participation therein for superior returns in the long run as compared to other asset classes.

• Global investors have over the years continuously brought in huge amounts of funds into India and participated in India’s growth story through the capital markets. The continuously increasing holdings of FIIs in leading Indian companies is a proof of their belief in India, Indian markets and their future potential.
• Over the last few decades, the government has played a mildly supportive role in facilitating this growth of the Indian financial markets, including the capital market. The act of dismantling the ‘Licence Raj’ and unshackling the Indian entrepreneurial spirit has been the biggest positive move for the markets and the economy. The growth of Indian technology, FMCG and pharma companies is an illustration of this hands-off approach of the government.

The economic reform process unleashed in the early 1990s has changed India irreversibly. There are swings and volatility but very clearly India has emerged as a stronger nation. This success has been market-led.

An increase in disposable income and life expectancy has clearly improved the quality of life and the need for saving and investment has become critical for maintaining lifestyle. On an average, Indian households invest their savings in excess of USD 65 billion annually in bank deposits. This amount, used more productively, can create wonders for our economy and the households.
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Rs 10000 invested in 1981 in several asset classes would have, over the 30-year horizon, given the following returns:

Over the long run, investments in bank deposits and gold will not be sufficient to beat inflation, and investors need to look at other options for maintaining their lifestyle in a growing economy with attendant inflation. As has been shown over the last 30 years and more, the capital market is the best wealth creator in the long run. Even in a scenario where the GDP growth is around seven per cent with inflation at around seven per cent, we are looking at a nominal growth in the economy of 14 per cent. In such an economy, the capital market is also expected to grow at least by 14 per cent. Participating in the market can thus surely provide superior returns in the long run.

Over the last few decades, the government has played a mildly supportive role in facilitating this growth of the Indian financial markets, including the capital market. The act of dismantling the ‘Licence Raj’ and unshackling the Indian entrepreneurial spirit has been the biggest positive move for the markets and the economy. The growth of Indian technology, FMCG and pharma companies is an illustration of this hands-off approach of the government.

Key strategic reforms carried out to strengthen the capital market infrastructure like dematerialisation of shares, introduction of electronic trading, empowering of the SEBI, etc. has gone a long way in the modernisation of the Indian capital markets. Of course, the government could have been more proactive and supportive to further accelerate the pace of reforms. However, even in a limited way, government support has been invaluable.

It should also be noted that through a process of reforms, trial and error, a robust and world class capital market infrastructure has been created in India. The Indian exchanges have become a toast for the global markets in terms of their systems, processes and risk management. While this assured and reassured the global investors regarding the Indian capital markets, retail investors still need more convincing and that remains the biggest challenge for all the market participants and players.

Global investors have over the years continuously brought in huge amounts of funds into India and participated in India’s growth story through the capital markets. The continuously increasing holdings of FIIs in leading Indian companies is a proof of their belief in India, Indian markets and their future potential. We need to now get domestic investors equally excited and communicate to them that the potential of gains through capital markets significantly outweigh their risks. Of course they need to be disciplined and cautious while investing in the markets and unless have sufficient expertise, should probably be better off investing through expert fund managers.

The last few decades have generally been unkind to the traditional Indian manufacturing industries, like textile etc. The new breed of entrepreneurs and professionals has revolutionised the services sector. Technology, financial services including banking, insurance, and asset management have emerged as new leaders. Out of the manufacturing sector turbulence, FMCG and pharma have emerged as the leaders. All these sectors have provided handsome returns to investors over the last few decades.

With globalisation and further economic development, it is expected that these sectors will continue to emerge even stronger while the traditional manufacturing sectors like textile, steel etc. are also expected to perform better over the next few years as once again the global cost economics is turning in their favour.

For Indian retail investors, the opportunity of wealth creation through capital markets over the next decade is huge. Wealth created by companies like Titan, Lupin and Jubiliant is not a one-off event. There will be many more multi-baggers over the next few years. Calibrated and patient investing in carefully selected fundamentally strong stocks will continue to enable Indian investors to reap handsome rewards in the years to come.