Ordinary Indians come to the rescue of stock markets
Tens of thousands of Indians are investing in stocks for the first time, many through monthly plans.
Mumbai - However, there are also risks in this outpouring of new investors
With red-and-white headphones draped around her neck, 22-year-old Indian IT security consultant Abdhija Sharma looks like she would be more at home discussing the latest music or Bollywood movies than compound returns on equity investments.
But at an office in a Mumbai suburb one recent Saturday, surrounded by banners urging them to "Create Wealth", she and 60 others listened intently as finance professional Alpa Shah explained terms like "the power of compounding".
Tens of thousands of Indians like Sharma are attending presentations promoting mutual funds, such as this one organised jointly by Suresh Rathi and Birla Sun Life, and investing in stocks for the first time, many through monthly plans. Their investments have helped send indexes to record highs; the NSE index is the best performer in Asia this year with gains of around 14 per cent.
The rally is partly the result of a drive by Prime Minister Narendra Modi's government to wean people off property and gold and channel savings into stocks through mutual funds.
The gains have led to soaring valuations, in particular in the telecoms sector, which some analysts believe are unsustainable and could lead to volatile price swings.
Sharma got interested in stocks after hearing her boss boast about how much money he made from the initial public offering of supermarket operator Avenue Supermarts. That stock has more than doubled since listing in March, and, to the concern of some brokers, become the second most expensive food retailer in the world, according to Thomson Reuters data. But Sharma, who plans to invest 5,000 rupees ($78) a month, believes stocks will beat property and gold in the long run.
"There are risks in everything," she said. "Fund managers won't let millions of people lose money. They will protect our money."
Since May 2014, when Modi came to power, Deutsche Bank estimates retail investors ploughed a record $31 billion into Indian equities through mutual funds, more than the estimated $21 billion overall by foreign investors over the same period.
As a result, assets under management have more than doubled to 17.55 trillion rupees ($274 billion).
Many new investors are buying stocks through monthly plans at mutual funds, or systematic investment plans (SIPs), of as low as 500 rupees per month.
'Skip the pizza'
It is part of a push by mutual funds to woo retail investors. Hundreds of presentations are held each month across the country, as well as major marketing campaigns.
The Indian government is keen on the idea, as home prices in big cities have become unaffordable to large segments of the population, while imports of bullion, another favourite among savers, have led to persistent current account deficits.
"The retail investors should ideally come to the stock market via mutual funds and exchange-traded funds," said a senior finance ministry official of the trend.
The Securities and Exchange Board of India has steered investors to mutual funds, strengthening oversight of the sector and warning against Ponzi schemes in television commercials.
Yet the proportion of equity investments as part of total savings remains in the low single digits, compared with around 10 per cent in China or 40 per cent in the United States.
Indian mutual funds promise juicy returns: Suresh Rathi's brochure says someone investing 5,000 rupees a month in stocks over 20 years could expect 4.9 million rupees in final returns; a four-fold increase assuming about 12 per cent gains a year in stocks.
As the educator Shah put it: "Skip one Domino's pizza a month and put that money into a SIP, and over 20-30 years you will get both wealth and health."