Sunday, November 12, 2006

Indian investing habits

Looking at the fascination of the pink papers about them, your guess may be ‘equities’! High proportion of disposable income, contained inflation and benign interest rates has facilitated Indians to grow their savings over the last couple of years. This is well reflected in the rise in the savings to GDP ratio (29% in FY06)

While the risk profile of Indian households has been traditionally low, the rally in stock markets and real estate has often caught their fancy. The latter is more justified given the fiscal incentive to it.

But there has been little change in the broader portfolio allocation. Despite the Sensex having multiplied 4 times in the last decade, the allocation to equities has merely grown from 4.5% of total household assets to 5% in the same period. It is also interesting to note that the same was 3.3% four decades back
The risk averseness is also evident from the fact that Bank FDs (47%) and tax saving schemes like the PPF (10%) continue to enjoy a higher allocation in the Indian investors’ portfolio. Another interesting figure is that the total fund manged by LIC is more than Rs 5 lac crore while the total Asset under management (AUM) of the entire Mutual Fund industry is approaching Rs 3 lac crore only.

While statistics reveal that equity as an asset class outperforms all other asset classes over the longer term, the investor needs to ask himself / herself a few questions:
Whether you have an investment plan?
Whether you are saddled with an incompetent advisor?
Whether your investments are lop-sided?
Whether you lack discipline?

Indians are not over-invested in equities for sure! This, however, offers them a very feasible investment opportunity, if done with the correct perspectives.

Now India’s GDP , in real terms, grew by 8.4 % during FY06 compared to 7.5 % during FY05.India’s growth story has been led by continued increase in contribution of the service sector (54%), and to a lesser extent by the industry (26.1%). This makes the case of taking risks by the Indian investor even more stronger.

Time will tell if we continue playing safe or start taking some risks. Don’t we know that there’s no gain without pain or no growth without risks.

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