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. The rich do this very well by controlling the banks (who make it cheaper to fund a new car), and make people chase vacations, etc…

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. This is unlikely to happen – the government will not want competition at the bottom of the pyramid – the cost of borrowings will shoot up dramatically. 

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. You remember what you read earlier, right? The real rich control the media. 

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..

8. Pathetic Corporate Governance – in the PSU and the private sector too. This dissuades the real long term investor.

9. People not bothering about who is going to feed them from age 55 to the rest of their lives. Longevity, Inflation, Old Age care, etc. do not seek to worry them when they are 22…

 

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  1. Excellent Input Subra . Are Asians Reserved for FDs ? Is there a DNA in Asians which ensures that they associate word RISK with EQUITY than with MONSTER INFLATION ? Is that DNA / Upbringing is responsible to a firm belief in core from childhood that Real Estate is REAL and FD is Guranteed and Assured ?

    Why i am saying this is because NAMO was in JAPAN and i was surprised to read in Paper that even in JAPAN ,Majority of Japnese Invest in Banks and Japnese People in Equity Markets are ard 5 % . Absolutely SHOCKING ! Japan is the nation where LONGETIVITY EXAMPLES ARE IN PLENTY…To Cross 100 seems to be Regular Feature ….Couple with this LONG DEFLATION and Very High Living STANDARD …. Worlds 2nd Biggest Economy with 100 % Litracy and Best of Technology Inventing Brains ….Inspite of this Very Low Equity Participation of Retail Japnese Investors ! How are they Moving on a scale from say 60 to 100 plus ? Yes Green TEA and Tea Party is Healthy found another proff !!

  2. Milind, the reason for low equity participation in Japan is because NIKKEI 225 is the most volatile stock market index among the developed markets. Having touched its highest of around 39k sometime in 1989, it dropped to 7,054 on March 10, 2009 and is currently at 15k+ (source: wiki)

    Will wait for the experts to chip in with more details 🙂

  3. Corporate Governance is the one major issue I have with Indian equities. But that is where diversification kicks in.

    Subra, i am one of the converts from real estate to equity reading your blogs and based on my returns from real estate. All through MF & ESPPs, recently I felt you have this bias of MF worst than direct equity.

    You gave few MFs you stuck for last 10-15 years, but there has to be times when you have to exit. How do we decide exit time, assuming i have investment horizons of 10-15 years.

  4. When stock market rises, I saw one trend. First auto stocks goes up and you would see robust numbers from these companies. The current generation of Indians seems to love cars, bikes and mobiles somuch that any profit or gain from the market are immediately diverted to buy these.

  5. 1. Lack of information/knowledge/awareness. 2. Lack of reliable advice 3. Lack of informatiion in regional language 4. Scams, regulations, laws 5. Culture, society and parental pressures 6. Unaccounted money largely goes into real estate, gold, ponzi schemes, multiple bank accounts and wherever transactions are done in cash.

  6. India is one of the few countries wherein we get high rates for FD’s. In Japan you need to pay charges to keep your money in the bank. In some other Asian countries FD raters are in the range of 2-4%.

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