Will Equity Ever Rule In India?

This topic may not look relevant right now but that’s the reason I am touching this. Bw these days I am reading “Shiva Trilogy” by Amish Tripathy so I picked the word ‘Rule’ 🙂

As per a SEBI survey conducted between 2015-2018, more than 95% of investors prefer FDs compared to mutual funds and stocks for investment.

As per AMFI’s data in 2018, less than 1.5% of Indians invest in mutual funds.

A part of these investors would be investing in Equity mutual funds. Of course, the awareness campaigns and investor education programs by MFs have increased the number of MF investors but the number is relatively small.

So why do investors shy away from the equity markets when equity is supposed to give the best returns? (Hmmm best returns)

Will Equity Ever Rule In India ?

Few Reasons Equity is Still Avoided

There may be many reasons but I am just touching 4 right now & leaving the comment section open for you to add a few more…

Investors are scared

Investors are scared of investing in equity as there are no guaranteed returns. They do not want to lose their hard-earned money. There have been many instances where retail investors have lost money due to volatility, stock market crashes (including covid-19) and scams like Harshad Mehtastill haunt.

Many stories of people losing money in the stock market go around which paints a negative picture of stock investments.

Knowledge Vs Herd

Many investors lose money because they do not make informed purchase and sell, decisions. Many investors follow the herd and when they see the markets rising, they buy stocks. When there is a fall in the Sensex or NIFTY, people panic and sell-off their stocks/Mutual Funds.

They enter and exit the market at the wrong times, which is fundamentally wrong. Even if when one doesn’t understand the valuation of the company, company prospects, market conditions and have a target selling price before investing in any stock – at least don’t follow the herd.

This may not help in increasing one’s chances of getting better returns but at least you will not be underperforming markets.

Check – How Herd Mentality Harms You

Lack of information and over-relying on tips and analysts 

The larger institutional investors sometimes may have access to accurate & raw information. They get news earlier as well, and they use it to benefit from the stock market. Retail investors are not privy to such information and end up losing opportunities or make the wrong decisions.

Apart from this, they invest based on tips from friends and neighbors which can lead to losing money. The market analysts on TV and websites are not always right. They can be wrong or sometimes even biased & many of the times misleading intentionally. Retail investors who follow these experts blindly can lose money.

Impatience 

Yes, we do hear about people making lakhs of rupees in one day. But that is rare. Moreover, there are many people losing a lot of money due to their impatience. Most retail investors do not have the skills to invest at the right time or sell at the right time. (even if something like this exists) It is important to be patient to make money. Check – Effect of Holding Period on Returns & Risk

Will Equity Ever Rule

As you can see, there are many factors that contribute to low retail investor participation in stock markets. But investing in stocks either directly or through mutual funds does give good returns in the long run, if done correctly. (don’t show me recent underperformance this is not much relevant in any investors life as his horizon is 10, 20, 30 even 50 years + bear markets are long term investors real friend)

Will Equity Ever Rule

Check – 3 Principles for Superior Returns

There are many steps being taken to make investing in stocks and related instruments more attractive –

  • AMFI introduced the ‘Mutual Fund Sahi Hai’ campaign to make investors aware of the advantages of investing in MFs.
  • MF Industry players are working towards reaching out to investors beyond the top 30 cities through marketing efforts and investor awareness programs. Investors can take advantage of the SIP and STP plans so that they need not deal with large amounts of money. This has resulted in the increase of investors in Mutual funds. Last year’s total collections from SIP were Rs 1 Lakh crore – which is phenomenal.
  • The higher education level of people now have access to information and the easy availability of multiple investment tools have contributed to more investments in MFs.
  • SEBI has an investor protection program and regularly conducts investor awareness programs on investing, derivatives, stock markets, etc.
  • Technology has made it easy for investors to buy and sell. Demat accounts have ensured less paperwork and transparency and immediacy of transactions.
  • NPS has forced (or motivated) many investors to participate in Indian equities.

So there are more people who invest in MFs and the stock market. As per a report in Economic Times, the MF industry added around 9,35,000 SIP accounts each month during the financial year 2019-20 which is a good sign as some chunk of this would be invested in equity-based Mutual Funds.

As per the NSE, the number of individual investors registering with it has been increasing at a 10-year CAGR of 11% which is a sign that more people understand the importance of investing in the stock market. But the number of participants in the derivatives market is low. (that is actually good)

There is an increasing trend in the number of investors in MFs and stock markets which means Indians are bullish on the economy and can participate in the country’s economic growth to reap benefits. It will take time for equity to rule as an investment instrument as there are many factors such as knowledge, information, transparency, and regulations that need to improve.

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Please share your views – why investors still have a hitch to invest in equity or Mutual Funds. When do you think equity investing will rule India? 

10 COMMENTS

  1. Equity mutual fund is not reliable and safe investment in India. I have invested in equity MF 3 years ago and now I had loose more than 2 lakh Rs because the market in india is not robust and it has tendency to sink Any time without any reason and no control of any agency over market. Till date the FDs are better option though yield is lower but you can get guaranteed result. FM manager must focus on investment of retail investors so that they do not loose money in the market, otherwise FM have no future in India.

    • Thanks, Ashok for sharing your frank opinion… but equity is the most volatile asset class & 3 years is a very short horizon to reach any conclusion..
      Emerging markets are more volatile than developed markets but that doesn’t mean that those not have seen negative returns for a long period. People who are getting so bullish on the US market don’t remember that their market was down substantially between 2000 & 2008 – almost a lost decade.

  2. Another major reason is the misinformation spread over the decades by a bunch of greedy and motivated analysts and financial planners, who continued to shift the goalpost at leisure, regarding the time frame for investments in equity. From 2008 onwards look at the dismal track record of returns given by Indian equity markets. We were told in 2008 that you can close your eyes and invest in “brilliant companies” like NTPC, ONGC, RIL, ITC etc and get fantastic returns within 4-5 years. A similar claim was made for Coal India (supposed to have been a terrific monopoly) when it came out with a IPO at Rs 210 per share. Just take a look at these companies 12 years later. Each and every one of them, is trading well below their 2008 prices. This is real negative return. Even the worst savings bank account has done far better. Now, the story being circulated is that you must have a time frame of 12 -15 years, to get good returns ( shifting goalpost theory). Yet, you all continue to howl from rooftops about the great future of equities in this country!!!

    • Hi Japesh,
      This article was not about the performance of stocks or funds but thanks for sharing your views.
      I would like to ask you one question: Last year in October I was in Dubai for 7 days & out of that 3 days it rained – should I consider Dubai as one of the wettest places in the world?

  3. It is clear that indian equities/MFs are substantially underperforming bond returns. Even fund managers are not taking cash calls to protect NAVs. Retail investors are losing confidence.

    • Hi Kumar,
      I can just say these are normal cycles – we have seen much bigger falls/underperformance in 2008 or 2002.

  4. Indian market is dominated by FII both in equity and debt market. MF companies are trying their best.
    So, its kind of monopoly by FII and some big investment companies to decided and take profit with them. Retail investors are paying their hard earned money. I had invested in SIP for 10 years and all of sudden one pandemic puts me off back to square one. So, my 10 years invested time in Equity yields zero or even negative. We can expect like this every 5 to 7 yrs artificially created by FII and big investors for their profit. This makes to loose hope on Indian Stock market and MF. Big MF companies like Franklin just write-off or close their funds just like that for their profit, ultimately Indian small investors are sufferer.

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