D0 you know what is the Wimbledon effect?

Well it is the location – the Wimbledon is in UK, but no Englishman ever wins it !! Similarly when the Indian stock markets go up, the participants are mostly White men in US or UK.

Why are Indians shy of investing in Equities?

Well Sucheta Dalal and Ravi Narayan have their reasons about this..and I am giving mine…

1. The whole media right from the beginning keeps saying ‘Equities are Risky’ – of course most people in the media business do not understand the word risky. If media started saying ‘Adjusted to inflation and for volatility equities give real returns over long periods of time’ – in a way that the common man understood, it would make sense.

2. There is a conspiracy of the rich – if people have to be kept engaged from birth to death in acquiring a car, a house, education for children, a bigger house…the best way is to keep them away from wealth creating assets.

3. People invest as per their greed and Risk-Return expectation. So people bought shares in Global Trust Bank (greed that it will become a big bank) and kept money in Fixed Deposits of GTB. When the bank failed the SHAREHOLDERS lost everything (price for greed) but the FD holders got THEIR FULL AMOUNT back (with those ridiculous rates of interest). So the message is – take risk on FDs, not on equity.

4. The government keeps coming out with a new regulation regularly – in the capital market.

5. If the bond markets, the national savings certificates, k v p, are dematerialised and opened to trade by the members of the stock exchange, brokers will penetrate the country much better…and increased market penetration will take equities also to the masses.

6. Share market movements look scary the way it is presented on tv. If a tv anchor can show the impact of inflation on savings, people would react better.

7. As the government owns all the banks, banks do not fail. Regular bailing out of banks ensures that people do not worry about bank deposit failing. This means just all the money goes to banks...14 lakh crores….is not a small amount lying in banks..

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  1. Subra, good post.

    Valid points. I like point 5, simply because of its reach and the kind of population it will be targeted at (Women, elderly, Tier-II and Tier-III cities).

  2. A creditor has relatively less risk where as an owner has more risk. The same holds good for return also.

    India is a country which has the highest proportion of Self employed and Entrepreneurs (right from platform hawkers, shop owners, SMEs etc.) in the world. They understand risk better than anybody.

    There is one IFA in Chennai by name Mr.Alagappan, who I understand has a SIP running about Rs.30 Lakhs per month. What is significant about this number is, all are small sized tickets mainly from the bottom rung of the society. Many of them are long term SIPs. He is a one man army. Legendary story in the Chennai market is as to how he drove in his bike for 200kms (to & fro) to get one single Rs.1000/- SIP.

    One RM told me that when Mr.Alagappan was in his branch, their usual tea vendor brought them tea. Mr.Allagappan had a chat with him and a SIP commitment was obtained, which got subsequently executed. That RM told me that it never striked him that the tea vendor, who is coming there for years, would be a potential client.

    May his tribe grow.

  3. Email from Vishal Khanna…he had sent it to my id…I have cut and pasted it here…

    Dear Sir,

    I’ve been reading your blog for almost 2 years.

    I would like to bring to your notice a case where it is evident that minority investors are getting a raw deal by vested interests. I’m an investor in Areva T&D & the scrip is seeing an unusual movement for the past couple of months.

    Areva Group had invited bids for selling of their T&D division worldwide in 2009 & towards the end of 2009, it was announced that the consortium of Alstom (who would get the Transmission part of the business) & Schneider Electric ( who would get the Distribution part of the business) had won the bid.

    The agreement for the acquisition was signed on the 20th of January 2010 & Areva T&D India mentioned this in its filing to NSE on the 21st of Jan 2010.

    “Areva T&D India Limited had informed the Exchange regarding Sale of Global Transmission and Distribution (T&D) business of AREVA. The Company has now informed the Exchange that the Areva group on January 20, 2010 signed a Share Purchase Agreement with Alstom and
    Schneider Electric, setting out the legal and financial terms and conditions for the divestment of its Transmission and Distribution business. The Completion of the sale transaction is still
    subject to obtaining the merger clearance from the EU Commission and other relevant, national, competent authorities.”

    Source :
    http://nseindia.com/marketinfo/companyinfo/eod/announcements.jsp?symbol=AREVAT%26D

    Source :
    http://www.schneider-electric.com/corporate/en/finance/press-releases/viewer-press-
    releases.page?c_filepath=/templatedata/Content/Press_Release/data/en/shared/2010/01/20100120_schneider_electric_and_alstom_have_signed_with_areva_the_agreement_for.xml

    Subsequently Areva T&D India was added to the F&O Segment vide Nse circular No 008 of 2010 from the 19th of February 2010.

    Source:
    http://www.nseindia.com/content/circulars/faop14115.pdf

    After its addition to the F&O Segment & dismal results the Scrip fell to a lower range making a low on the 25th of May 2010. On the 26th of May there was an open offer made for 20% of the issued share capital & the scrip immediately shot up.

    On the 20th of July, the open offer was is postponed until further notice.

    Since then there has been no update on the Open Offer & the company has made no information available to the minority shareholders about the intentions of the acquirers.

    There is a report about the company selling its land holding near the international Airport in North Bangalore with the transaction not being a part of the transfer of the T & D Business.

    Source :
    http://www.vccircle.com/500/news/areva-to-divest-blore-land-asset-for-27m

    I have mailed the investor relations at investor.relations@areva-td.com but have not heard from them either.

    It is very clear that things aren’t being done in a transparent manner & something is not right with the way things are proceeding.

    You’ve mentioned Areva T&D on your blog at http://www.subramoney.com/2010/08/bad-news-for-old-portfolios/ & after reading your post on why indians don’t invest in equities, I had to mail you.

    What do you think, a minority shareholder can do in this case.

    Regards,
    Vishal Khanna

  4. Subra,

    This post is unlike your normal style. Almost like being written by another person. I do not agree with your thoughts.

    Indians mostly have very little disposable income in their early life. They just manage to save for PF / PPF or tax saver MF schemes that give Income Tax relief. Lack of financial knowledge and lack of access to advise, leads to taking the above mentioned easier options.

    Due to tight family budgets, risk taking ability is limited. Only business background people do invest in shares as they have seen family members benefiting through this.

    In their later life, when cash is available, there is the spectre of retirement security, which deters people from investing in direct shares. Mutual funds get better acceptance as these are managd by professionals. Not many investors will invest in shares due to lack of familiarity with the modality of selling / buying.

    After the spread of internet, there has been much better access to good data and advise. Tracking your investments has become much easier. I am sure the new generation will invest in more numbers.

    Regards

  5. @ Rajeev,

    I do not agree with you. India just has a conservative mindset, very very poor financial literacy and big resistance to change. It is this lack of financial literacy that is largely responsible for bulk of misselling that goes on in financial products, budget has nothing to do with it. How do explain the rational that people “invest” in endowment plans for their kids, which can never give more than 6.5%-7% CAGR over period of 20 years while same investment in an equity diversified fund will give about 15% CAGR? Clearly, budget is not an issue here. (Refer to Subra’s book how to build wealth with small dose of money and large dose of discipline).

    India, despite being IInd largest Saver in the world, has bulk of the savings in PPF/FDs/Debt products. People here do not understand the impact of Inflation on capital and thats the biggest problem, not the budget.

    Another statement I have issue with is “Indians mostly have very little disposable income in their early life.”. About a year ago, I was at a MBA college giving lecture on financial planning and main thrust on starting investing early. I told the students that the BEST PERIOD OF THEIR LIFE FOR INVESTING IS JUST WHEN THEY JOIN THEIR PROFESSIONS. The needs are limited for those bachelors till the time they are married, more so those who are living with their parents, most of them will still have working parents and so not much of pressure to contribute at home. Rather, IT IS THE EARLY LIFE THAT HAS THE BEST POTENTIAL TO SAVE AND INVEST.

    Now the budget part: If any of those garduating MBAs starts putting just Rs. 500 pm for their working span of 40 years in the equity route, this leads to phenomenal Retiremnt corpus of About Rs.1.55 Cr. Increase this deposit by just Rs.500 EVERY 10 YEARS, AND THE CORPUS BLOATS TO ABOUT 2 CRORES. The sceptics will say what will be the value of Rs.2 Crore at that time? Firstly, even Rs.500 that u are depositing does not much of a value today. Secondly, if you were to deploy those 2 crores at 9% rate of interest and you lived to the ripe old age of 80, you can easily draw more than Rs.2 Lac pm from that corpus alone. How is that for your retirement planning?

    The Problem, Sir, is in the perspective.

  6. Hello Mr. subra,

    Iam new to this blog.Iam a student of CFP, having finished 2 modules.I would like to know your view on ETF,S. I was reading one report which says over long term ETF,S will deliver much better retursn than any diversified fund. pls comment

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