Investments and savings (personal): India
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Investment in stock markets, banks, mutual funds, gold
1995-2015
The Times of India, Nov 02 2015
Uma Shashikant
Much has changed in the way India invests since 1995, and mostly for the better
Everyone is celebrating 20-year milestones these days. The nice thing about history is that we can attempt to explain the present by looking at the past, with the benefit of hindsight. What then seemed tough, foolish and difficult, seems pathbreaking today. Then there are things that do not change, ever. It's my turn to do the 20-year flashback this week. Stock markets
In June 1994, a new wholesale market for debt was set up. Funded by institutions, it used the best satellite technologies and tried to create a market where institutions would buy and sell debt securities.But the debt markets in India were not ready for it. The leaders changed course and deployed the systems to create a new equity market. It wasn't easy .
Equity markets were already being served by 20+ stock exchanges, the oldest and largest in the same city as the new one. The new market went ahead nevertheless, permitting trades in equity shares listed on other exchanges on its satellite-linked electronic system.
In 1995, the experiment succeeded.The new market overtook the old in business. The National Stock Exchange (NSE) is an example of how a new entity can bring about positive change. How it can create a new system with higher efficiency , lower costs, wider participation, better technology and higher integrity .NSE modified how investors trade in India, creating a trading, clearing and settlement system on par with the best.
Banks
In January 1995, HDFC Bank opened its first branch in Mumbai. In March 1995, it offered shares to the public in an IPO priced at `10 per share, to mobilise `50 crore. The issue was oversubscribed 55 times and opened to trade at `40. The popular opinion was that the bank would soon merge with its illustrious parent.
All through the 1990s, public sector banks hogged the limelight for their equity offerings. No one gave private sector banks much of a bright prospect.
The PSU banks were well entrenched.They were bankers to the government and public entities. The cost of funds for the public sector banks was low, and the regulatory requirements was uniformly applicable to the new private banks too.If the new banks tried to bring in sophistication and technology , they had to face competition from foreign banks, that held a monopoly over the NRI and remittance businesses, apart from working with the large private corporate treasuries. Where was the room for new private banks? Twenty years on, private banks have built a new retail lending market that is large and growing. They have captured a large share of the institutional business. They offer superior technologies and service, and have managed to do so at a lower cost compared to their public sector counterparts, and have stronger, better and bigger balance sheets.
Mutual Funds
If one looked at mutual funds in 1995, UTI dominated with over 90% market share.While the other players were trying to find their feet, UTI was launching a slew of monthly income plans (MIPs) which promised double digit returns. The other public sector mutual funds were suffering the consequences of faulty product launches in 1991-92. They had sold 7-year closed end equity funds, with the promise of doubling and tripling the returns, and the NAVs were nowhere near target.
The new private sector funds did their best to market their products, but did not mobilise much money from investors who were worried about the lack of liquidity . Mutual funds had to list on the market and it was common for prices to be lower than the NAV . Approvals were tough to get. Banks and institutions were not selling funds, yet.
It was in 1995 the first wave of process innovation hit the mutual fund industry with open-ended funds with account statements and no certificates. Dividend and growth options were offered and banking distribution was tied up. But the struggle was with the idea of assured returns that investors clamoured after.
In 1995, when global investors were asking for depository and T+3 rolling settlement, what we had then seemed rudimentary . Today, the NSE has helped set up several stock markets across the world and is a model for risk management and settlement guarantees. In 1995, it seemed banking belonged to the public sector.Today , the success of private banks has established that PSU banks will have to restructure or fade away .
As for mutual funds, there is enough evidence to establish that a diversified portfolio over the long run beats all other investment options. But investors seem busy trading stocks and investing in bank deposits, and not engaging enough with funds. The plague of new schemes sold with inflated promises and performing schemes staying in the background has not changed. Not in 20 years.
2007-16
The Times of India, Feb 02 2017
No one asset outperforms others consistently over time. In the past one year, equity mutual funds and government securities gave higher returns than other assets. Over 10 years, it's gold that beats all other asset classes. For consistent long-term gains, put your eggs in several baskets. Of course, returns is only one of the three criteria to look for before investing--safety and liquidity are the other two. Government securities, the safest investment option, matched returns from equity funds last year. But this is a rare occurence
Saving habits
2011-16: Indians invest more in equity, debt
Allirajan M, Indians invest more in equity, debt, Sep 29 2016 : The Times of India
Indian households are increasingly putting more money in equities and debentures. Investments by households in shares and debentures jumped 72.2% year-on-year (yo-y) or by `38,491crore to `91,763 crore in 2015-16, Reserve Bank of India (RBI) data showed.
In contrast, their investments in bank deposits advanced by a mere 3.8% y-o-y or by `22,594 crore to around `6.16 lakh crore.
Household investments in shares and debentures have surged more than five times between 2012-13 and 2015-16. But their savings in bank deposits have moved up by a measly 7.1% during the timeframe, RBI data showed. Incidentally, households held a record `6.48 lakh crore in bank deposits in 2013-14. Household investments in life insurance products, another favourite, increased 9.8% y-o-y to around `2.72 lakh crore.
The interest in equities and debentures has been growing at a robust pace over the last three years. The steady decline in interest offered by banks for deposits following a series of rate cuts by the RBI has acted as a dampener for those looking to invest in traditional instruments such as FDs. Though there have been corrections, equity markets have risen steadily in last three years with benchmark indices hitting new highs.
