India Insight

Wary of stocks, Indians cling to safe havens

Sometimes people suspect that the grass is greener in the next field … but they’re not always right.

Consider this. India’s gross domestic product has grown about 7 percent on an average per year for the past nine years. Its industrial growth has been steadily rising since then. Buoyed by economic growth, the country’s capital markets also offered itself as an attractive and inflation beating investment option.

That means that someone who invested at the end of 2002 in the BSE’s benchmark index, Sensex, would have made a 418 percent return on his portfolio by July 11 (just a random date). It sounds like the Madoff plan, but it’s not. The Sensex’s value on Dec 31, 2002 was 3377.28 which rose manifold to 17489.14 on July 11, 2012. Our market had its fair share of ups and downs, but it remained focused and depicted the country’s growth story.

However, that “someone” who made the 418 percent return most likely was not one of us. The average Indian investor has been satisfied with, and probably still wants, investments with a fixed return that comes from safer havens. According to the National Council of Applied Economic Research, Indians were called “wise savers but poor investors”. The statement found its base in the statistics that its Indian household Investor Survey revealed.

According to the survey, only 10.74 percent of households were investors (up from 7.4 percent in 2001-2002) while 89 percent were either saving in fixed income or are still clinging to their savings accounts. About 46 percent of urban households preferred to save, compared to 21 percent who chose investing.

Days of darkness during Diwali?

Diwali, the festival of lights, is here but do we see a pall of gloom with the BSE Sensex crashing more than 50 percent since January 2008?

Things have come to such a pass that some people have simply stopped looking at their portfolios. They think it’s too late now to cut losses.

“I have now lost faith in long-term investment, I wish I had booked profits in January when my portfolio had doubled,” says my friend Vikrant, who works for a leading business newspaper in New Delhi.