To understand this, we just have to look at listed Indian companies’ market capitalization then, and now. Before 1991’s liberalisation launch, India’s total market cap was just around Rs 1 lakh crore. Today it stands in excess of $5 trillion, or more than Rs 400 lakh crore, which translates to at least a 400X wealth creation by Indian listed companies during these 33 years.
In fact, India has become one among the only five nations or markets in the world that have surpassed this $5 trillion mark. Previously, only the US, China, Japan & Hong Kong have achieved this feat. But when it comes to per capita incomes and living standards, India still has a long way to go compared with these other nations / regions.
But this is something that shouldn’t discourage us, as India’s socio-economic challenges are much bigger than any of these nations or regions. India has a much bigger population than Japan or Hong Kong and far fewer natural resources than the US or China. Besides this, India has to work things out in the framework of a democracy unlike autocratic China or a two-party democracy like the US.
However, our world-beating population as well as our vibrant democratic norms can be put to good use, if only we start thinking innovatively - maybe like how no nation has ever done before - for uplifting the living standards of all Indians, or at least for all Indians who are in dire need of it, by leveraging the wealth creation potential of our own equity market.
Even with the dramatic rise in indices like Sensex and Nifty, and the even higher rise in Midcap and Smallcap indices, only around 10% of Indians have a demat account to invest directly into stocks. Mutual Funds in India have been on a high growth trajectory since the 2009 World Economic Crisis and the stock market rout, but still there are only a little over 3% of Indians who have invested in mutual funds.
Interestingly, India is perhaps the only country in the world where there are more demat account holders than mutual fund holders! This is attributed to two aspects - one, the relative immaturity and under penetration of the mutual fund industry, and two, the affinity for India’s upper class segments to invest directly into stocks.
But this will change eventually as more and more Indians realise that equity investing is best left to professional investment firms like mutual funds. But whether this happens or not shouldn’t concern us, as the pressing need of the hour is to bring the benefits of equity market investing to more and more people who need it the most.
As a first step towards this, just like how Jan Dhan bank accounts were started for over 50 crore Indians for direct benefits transfer and other facilities, there needs to be a mechanism whereby crores of needy Indians are gifted with mutual fund accounts. These can be zero-cost demat accounts, provided there is enough depth and variety in Exchange Traded Funds (ETFs) and/or if more fund houses support storing mutual funds in demat accounts.
Since both these scenarios are not yet here on a sensible scale, the more popular mode of mutual fund investing, that is through folios, can be relied upon for this purpose. All mutual fund houses, especially those MFs promoted by public sector entities like SBI, other PSU banks, LIC etc can be asked to take the lead in this exercise.
If you are still wondering where the actual investments would come, the answer is simple. The Central Government has been paying Rs 6000 per year to each landholding farming family in India, since 2018 as income support under the PM-Kisan scheme. Similarly, many state governments have been paying various kinds of pensions to economically weaker sections of the people, like senior citizens, widows, disabled people etc, which are often much higher or comparable to the farmer payouts.
If the central and state governments can come together to provide at least Rs 500 as a monthly assistance to needy families for their savings by investing into mutual fund SIPs, that alone can elevate the Indian living standards into developed nation territory, as a monthly Rs 500 investment into an average performing mutual fund SIP of 15% CAGR would create a corpus of over 1.5 crore rupees for each family within a 40 year period, which is the most crucial time frame for families as a young couple moves from their 20s to their 60s.
The beneficiaries of such a savings payout can be limited by the same mechanisms used to limit the farmer payouts, like limiting it to non income-tax payees, non-employees of government & public sector, non-holders of constitutional posts etc. But at the same time, all citizens should be encouraged to take part in such a scheme, from their own pockets.
Such a move would also bring in unprecedented inflows into the Indian corporates, which would be flush with capital for not only competing effectively with global majors, but for lessening our dependence on overseas capital and for scaling up our production and service capabilities for the whole world, and in the process creating higher paying jobs for the next generations of Indians.
While the Indian market may appear overvalued for now with the market-cap to GDP ratio crossing the 100% mark, two things offer comfort for the long term growth prospects of our equity markets - one, there are equity markets like that of the US that is trading at over 155%, and two, we are the nation that is growing the denominator of this ratio, that is the GDP, faster than any other, for now.
No comments:
Post a Comment