Only with spread of awareness can equity cult take deeper roots
Dec 05 2012, 2205
Market capitalisation of stocks traded on the Bombay Stock Exchange has surpassed the amount of money deposited with banks. This is a crossover that should have come earlier in India, if only the market stakeholders, who include stock exchanges, the market regulator, stockbrokers and policy makers, were more proactive in taking certain measures to make putting money in stocks a better option than in deposits. Had it happened earlier, it would have continued for the good of all. Nevertheless, better late than never. Despite ours being one of the best performing indices in emerging and developed markets alike in the past decade, the benefit of wealth generation through the equity market has been derived only by a small number of people; a few million. In a nation a of billion plus, that is surely a handful, but they have been able to capitalise, as it were, on the India growth story by investing in shares. India is a nation of savers (our saving rate is one of the highest) but only a very small portion of those savings find their way into the equity market. Not many Indians are comfortable investing in equity. One reason could be that our equity market is very young, never mind that the first trade on the Indian market happened way back in 1875. But in a true sense, our market is just 20 years old, born after the Securities and Exchange Board of India, armed with powers, began to clean up the market. Even so, growth of equity as an asset class and the number of investors has been extremely slow. It is about time all stakeholders took a serious look at the factors that hold back the equity cult from being accepted as a long-term investment vehicle by more people. Why is that gold which gave negative returns for a very long period, from 1986 to 2000, is still considered a safe investment option? Why again this deep faith of out in real estate, which also gave negative returns between 1997 and 2003? There are many myths (and fears) that hold people back from investing in shares. It is a hard fact that even today, tens of millions of people with investible money believe investing in stocks is something like speculating and gambling. They, therefore, stay away from stocks. Little has been done by anyone to dispel these fears and beliefs or to spread awareness about the good tidings that money put in shares can bring. The main reason for this state of affairs is that the distinction that should have been there between investor protection and investor education is missing. The market regulator has taken up the cause of investor protection in right earnest and implemented many steps to smoothen the system and make the market a much safer and transparent place. But it has taken a step back when it comes to investor education. Every stakeholder has been shying away from taking the responsibility of investor education and assumes that it is someone else’s job. This shackles the market in developing further. What is immediately needed is that the market regulator and stock exchanges should take steps to spread awareness about equity instrument in tier II and tier III towns. Once the people in these towns know what the risks and rewards are in making long-term investments in equity, will we see further spread of the equity culture. Only then the benefits of the India growth story will pass on to more people. They will make the growth story complete.