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Stock markets are a confluence of a variety of investors. They are broadly categorized into retail and institutional investors. If you dive more deeply, individual or retail investors can be categorized into small and high-net-worth individuals. If you are not among the wealthy, you are a retail investor. Over four crore people like you own mutual funds and demat accounts. In a country of 140 crore people, that is still a tiny number but much higher than less than two crore about five years ago.
The annual report of the Securities and Exchange Board of India was published last week. It makes a lot of interesting observations. While there is coverage about institutional investor activity, there is little information about a category of investors that could be put under ‘smart money’. These are clients managed by portfolio management services or PMS. The Sebi annual report highlights that high-networth individuals (HNIs) are seeking professional help outside the ambit of the traditional mutual fund industry. They want more customization of financial advice, which is creating a fast-growing private wealth management industry.
If you speak to private wealth managers, they will tell you that these investors catch trends early due to active advisor support. These investors usually lead the way in most local markets around the world. Small investors are precisely the opposite. They usually are the last ones to get into a stock market rally.
According to the Sebi annual report, as of March 2024, about 1,61,571 wealthy clients invested over Rs 33 lakh crore in equity and debt markets. About 80% of that money is in listed debt instruments if you dive deeper into finding the data. That means the rich people focus on preserving their capital more than taking risks. The data on where the smart money goes is not mentioned in Sebi’s annual report. You must go through the monthly industry data published by Sebi on the website. They have increased their allocation to equities over the past few years as a percentage of total investment.
However, debt instruments remain a dominant avenue for storing wealth.
Another group has also cut their ownership in the equity markets. Those are promoters of listed companies. The aggregate data shows a decline in the promoters’ stake in listed companies. That shows business owners believe that their companies’ valuation is on top, and it is an excellent time to cash out. There is usually a very marginal change in the promoter ownership. However, as share prices rallied over the past three years, promoter ownership in listed companies on the National Stock Exchange fell to 41% now from 44% three years ago.
The money promoters raise is a sizeable amount for personal use and finds its way into real estate or fixed-income instruments. Too many investor-owned luxury apartments in Mumbai exemplify how the rich deploy their money. There is not much consistent information about property ownership by investors in the real estate sector.
The Reserve Bank of India has expressed concern about financial savings moving from bank deposits to equity or derivatives markets. So much so that the latest credit policy flags that as a risk to financial stability. There is a slowdown in the deposit growth compared to the credit growth.
While your fundamental right allows you to move your money at will, you must ensure that all your eggs are not in high-risk, high-return instruments. You must plan your investments carefully to achieve your long-term and short-term financial goals. Investing in sophisticated derivative products without understanding the basics of investing is a recipe for disaster. You could lose your hard-earned money and never return to financial assets.
The future involves knowing more about your investments and working with a professional advisor to build a strong portfolio. The advisor cannot be your relative or a close friend. Financial planning is not just about investing. It is also about the way you manage your income and expenditure. Borrowing to spend is not a good habit. It is as bad as investing without knowledge.
(The author is editor-in-chief at www.moneyminute.in)