An Insight Into Segments Of Society From A Different Perspective
If we were conduct a study about various patterns amongst salaried individuals, we will come across many research papers that focus on the impact of various variables on the choice of investment decisions and the selection of different financial instruments.
In 2011, there was a study conducted by Gupta et al which looked into preferences, future intensions and experiences of different Indian households and found that bonds were preferred the most amongst retired people, however these same instruments did not work well amongst young individuals. For long, researchers have considered factors such as age, gender, marital status, profession, education and financial knowledge imperative to making an form of an investment.
We can justify the resistance to shift to a certain extend. However, prominent events such as the financial crisis of 2008 – 2009 in the United States, have made it even more pressing to make revisions in various underlying assumptions which in turn would bring about a change to the core factors. To be fully aware of who all are investing in the stock market, let us first understand the factors that drive the Indian equity market.
What are the factors that drive the Indian Equity market?
The Global Financial Crises had an indisputable impact on the global GDP growth rate which is clearly visible in the graph below.
New factors such as internal consumption and domestic retail investment drove the real GDP growth rate. Internal consumption and domestic retail investments are dependent on the securities market and the sentiments of investors. This is known as the “wealth effect” of the stock market.
It was also identified that urbanization and socio economic reforms and growth were amongst the major drivers of the Indian financial market. Households with the same income and education were observed to invest more in the stock market in comparison to the population residing in rural areas.
In 2011, there were 7.1 crore people added to the urban population in India, which resulted in an increase in the urban population from 27.8% to 30%. In spite of long term economic growth as compared to the global markets as indicated below, short term growth is steered by consumer sentiments or in Shleifer and Summers’ words: “Noise traders.”
How Does The Level Of Awareness Determine Who All Are Investing In The Stock Market ?
According to a survey report by SEBI, there was a sharp distinction in the awareness level between the savings scheme and investment instruments. This is in consistence with the fact that the public often looks forward to having a hold over tangible assets or assets that provide close to 100% assurance of positive returns. One major disadvantage of this trend is that there is a minimization of diversification of the investment portfolio which is majorly attributed to the literacy rate and the level of education.
This trend resonates the prospect theory which suggests that consumers do not prefer looking at the final position of their savings but the change in their current position.
In simple terms, the investor analyses the risks and the corresponding changes in his savings rather than taking his final returns under consideration. In times when there are job losses and lower growth in incentives, it is imperative to move towards lower to zero risk options while planning your savings. It is therefore necessary to increase the outreach of investment instruments amongst a wider section of the society especially when there are untapped investor bases in rural sections, second and third tier cities in India. This would help increase diversification of an average household’s portfolio.
Relation Between Income & Investment Preferences
Besides the level of education, the SIS report analysed the the percentage of investments made on the basis of the profession and income levels of the people making an investment. If we have a look at the chart below, it can be observed that government employees have shown the highest level of interests in the equity market.
This is in direct conjunction with the education level. While agriculture was anticipated to be at the last, it can be considered as a good sign that the investors engaged in agricultural activities are on an upward trajectory. This indicates that a positive impact of the efforts put in by various institutions such as SEBI to encourage more participation in the Indian Equity Market.
According to the same report, 70% of the households within the income group of 0.5 to 1 lakh rupees are engaged in equities and related investment instruments even though mutual funds remain the primary source of attraction amongst all income groups.
It can also be observed that the lower income groups prefer to invest in debt instruments rather than equities due to reasons of minimal risk and comparatively stable returns.
Changes In Trends During & After The Pandemic
With 65% of the total population in India, under the age group of 35, there has been a new trend in recent months. With the advent of internet, especially during the pandemic, there is a rising literacy rate amongst various parts of communities. Thanks to the various innovative products by the telecommunication sector that have been articulating the idea of making cheaper data available to almost every citizen. Every part of our country, which is divided into metro cities and then the 2nd and 3rd tier cities, has seen a surge in data consumption which also means that cheaper technology has been pushed deeper into the society.
The reason for stressing upon this aspect is due to fact that the image created by people familiar with the Indian stock market during the 90s and the related insecurities which is clearly visible in the chart below, has been changing.
The mindset among millennials with regard to investments in the equities market is taking an interesting turn as more and more number of amateurs are being driven towards the stock market. In fact, many job losses happened in recent months which left people with very few options regarding their savings. The number of Dematerialized accounts increased to 10.4 million in 2020 which indicated a major shift in consumer sentiments towards diversification of portfolios.
There was a rise in retail ownership as the numbers rose to 9% across 1500 companies listed on the National Stock Exchange in the third quarter of 2020. Another trend that was observed by Angel Broking Ltd. was that out of 510,000 customers that were added from October to December, a whooping 72% of them had never traded before. Apart from the lack of experience, majority of these customers belonged to the 2nd and 3rd tier cities with a surprising intent of long term investments.
Thanks to the convenience of the internet, retail investors from the tier two and three cities tend to put in more money especially when the economy witnesses a bear market.
Even as many of the pandemic restrictions that India imposed in March were lifted, the retail investing ferver continued. Central Depository Services (India) Ltd opened a record 1.47 million accounts in January, up more than threefold from the same month in 2020, and 1.36 million in February.
Concluding Remarks – Who All Are Investing In The Stock Market ?
As a conclusion, investors ought to understand the importance of improving their knowledge and understanding of the stock market rather than develop a notion of taking risks when it comes to investing. Various governmental platforms such as SEBI that have been bolstering the notion of secure investments by introducing regulations against tempering the stock market. Therefore, it would be prudent to take a step forward and start trading as a side gig.
This article is authored by Abhishek Katti. He is a graduate of technology from NIT Allahabad. He writes about topics such as economy, financial planning, investments and wealth management.
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