There is a visible increase in your participation in equity markets. The latest data on ownership of Nifty 500 index companies shows that individual investors, who are not promoters, own 8.7% of the total market cap of over R400 lakh crore. In addition, domestic mutual funds now own 9.6% of that value. While direct individual ownership has remained the same over the past three years, the data shows an increase in the ownership of mutual funds in the Nifty 500. That shows that you directly and indirectly control a sizeable chunk of the equities market.
The rising inflows in the systematic investment plans (SIPs) pushed by mutual funds create a cushion for share prices. The money designated for equity markets will be invested based on the valuation parameters. Active managers can hold back putting in the money if valuations are too high. But not for long. They must eventually deploy it. That ensures that you will have mutual funds or local investors picking up equity shares at every sharp fall in equity markets due to a global selloff. If you are not familiar with the world of finance, it would be hard for you to connect the dots. You can imagine that even someone who comprehends English cannot quickly understand all the information.
The National Stock Exchange monthly bulletin highlighted that we now have ten crore unique investors in the stock market. These are the unique permanent account numbers or PAN cards registered. The NSE bulletin said reaching one crore investors took over 25 years. The subsequent additions were made rapidly over the past few years. That could be attributed to people acquiring smartphones accessing mobile banking, trading accounts, and Aadhaar. Last-mile connectivity has been a problem till recently. We are behind that problem now. However, merely providing access to people does not make them financially literate. The problem of not being able to make sense is likely to get bigger with more people signing up to invest.
There is a strong correlation between financial awareness and financial outcomes.
A research paper cited in the latest NSE bulletin highlights that financial self-awareness positively relates to saving and prudent investment decisions. Sebi’s consultation paper, published late last month, discusses easing the rules for qualifying as a registered investment advisor or RIA. That should expand the scope of professional advisors in the country as India’s rapidly growing investor community needs a structured approach towards financial knowledge.
The other important aspect is women’s participation. It is a no-brainer that India suffers from below potential growth rate due to the poor participation of women in the workforce. In the stock market, too, there is very little data about women investors. Another paper cited in the latest NSE bulletin publishes a survey of women entrepreneurs and their investment habits. The results are revealing. They show that women who take risks to start a business are risk-averse regarding investments. They admit to inadequate knowledge and prefer to keep their money in real estate, gold or fixed deposits.
The survey spoke to women in Mumbai and Pune. A more expanded scope for such a survey would reveal investment habits in different geographic locations. India’s financial markets need women and men to invest. At ten crore, we are merely in single-digit percentage in terms of participation.
Taking risks is very important to succeed in the stock market. However, you can take risks only if you know enough about the investment you make. To get there, you have to make an effort. You cannot build a risk appetite by switching processes or a machine on and off. It is a gradual process. You must take your chances when opportunities present themselves. You must follow trends regularly to know that situation when you have a chance. The trend influences your investments in an economy’s inflation and interest rates.
The companies you invest in make money based on the growth opportunities for their products and services.
The demand for these products and services is based on the government and households’ overall economic activity and spending. You can’t get on top of the information cycle without adequate knowledge. Either someone does it for you, or you do it yourself.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)