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The stock market is the new altar of worship for youth. Some 60,000 young investors, with disposable incomes, play for high stakes and check out new investment options round the year. Gaurav Choudhry reports THE run-up to the first full budget of the UPA government has built up huge expectations among the young as major reforms initiatives are expected. Finance Minister P. Chidambaram knows he will be the centre of focussed attention of the whole nation for the papers in his briefcase will carry the keys to unlock the door to myriad opportunities. Some call it second-generation reforms, others the ‘take off stage.’ As he reads out his speech, tens of thousands across spread swanky boardrooms, plush malls, upmarket pubs and even in the roadside dhaba would surely have one question uppermost in mind: How is the stock market today? For there is too much at stake and a lot to gain from that ephemeral sensation called market sentiment.
With the youngest population in the world in terms of average age and rising income levels, market fever is certainly catching up in India. Although no official disaggregated data of age profile of investors is available, analysts clearly say that an estimated 60,000 new investors (mostly in the age group of 25 to 30) are entering the market every month. Fixed deposits and post office savings have become passe. Investors found that it was just not worthwhile to invest in bank deposits and put money into stocks. Bank deposits as savings instruments was not considered to be street-smart – financially and otherwise. Investor confidence began to ride sky-high giving birth to a new crop of people who created large amounts of wealth through bourses. The changing demographic profile of investors, where the average age has come down drastically, to some extent, reflects the changed priorities of an investment."Young people who never dreamt of owning cars till they were into their thirties got tempted not only to buy their first cars but also invest in new homes. For stock-markets this was the perfect recipe as bulls rallied and crowded out the bears," Dhirendra Kumar of Value Research, Delhi said. "Earlier, for obvious reasons, the focus was more on saving for the rainy day. Given the economic rigidities in India’s financial market during that point of time, such a phenomenon was natural. My parents parked almost their entire savings in banks offering limited savings options. This was because, they wanted easy access to liquid funds just in case money was required for an exigency. The rates of return from fixed deposits in banks were also high and the risk of losing money was negligible", says M. Singh (name changed), a Delhi-based investor. Today, however, the situation is vastly different. "There are enough insurance products to protect myself against all kinds of emergencies. The organised credit market has grown to an unimaginable magnitude. Quick funds are available at reasonably low rates of interest as banks vie against each other to woo the borrower. Unlike my parents, therefore, I do not have the need to store my savings in banks only. Equities, although the risks are high, offer me the best savings option with high returns", he said.
Add to this rising incomes. The above person is a business executive in a top corporate firm. He earns, on an average, Rs 50,000 per month. Of this, Rs 10,000 per month is earmarked every month for repaying a loan for a house he bought recently. Another Rs 6,000 is given as EMI for a car loan, Rs 5,000 as insurance premium and Rs 15, 000 for household and other sundry expenses. This leaves him with Rs 14,000 as disposable income, part of that finds its way into the equity market, fetching higher returns. The stock markets opened up a set of alternative earnings, and savings, options. "Previously, the only savings options were banks and government-administered small savings schemes such as post-offices savings and provident funds. I may have lost some money by investing in equities, but still have earned much more as compared to conventional savings options, says Sanjay ( name changed), a mid-level executive in a top MNC firm. Sanjay, like many of his peers, draws a handsome seven-figure annual salary and regularly invests in the stock market. The primary equities market and the ever-growing mutual funds market, he says, is providing the perfect foil to multiply money at a faster clip. "In a period of seven years, my net worth from equities and mutual funds is more than Rs 25,00,000. Today, if I were to sell all the shares I would be sitting on Rs 25 lakh. And to say that I started from about Rs 2 lakh, the banks and other savings schemes do not compare well," he said. More than the primary market, it is the mutual fund industry that has to be credited for triggering this phenomenon and is often the first entry point for fresh investor into the equities market. A mutual fund, as the name suggests, pools the savings of a number of investors and the money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders (investors) in proportion to the number of units owned by them. "It is a low-risk, high-return investment option as mutual funds offer diversified investment opportunities in a professionally managed basked of securities", Sanjay said. The present size of the industry tells the story. As on December 31, 2004 total assets under management of mutual funds were to the tune of Rs 15,0537 crore. Compare this with Rs 14,0093 crore, the corresponding figure in the same period last year. In a period of one year, more than one lakh crore have come into the market, through mutual funds. And most of these new investors are in the younger age bracket. Analysts said that there is a distinct correlation between enhanced levels of disposable income and rising investment in equities, particularly among youngsters. Compared to about a decade ago, the income levels among the urban youth have increased manifold. Market analysts tracking the developments in Indian bourses point out that the growth of the stock market is directly traceable to the health of the economy. Nobody would deny that the economy has entered into a high-growth trajectory in the post-liberalisation era. For the domestic employee, things could not have been better. The classical wage-price equalisation theorem began to manifest itself in India.. Salaries began to increase, significantly if not exponentially. But unlike in the past, every employee was not laughing all the way to the bank. Instead, many of them were laughing all the way to the stock market. "Higher income levels have translated into more disposable income. The propsensity to save, especially among the younger people, showed robust augmentation", said Harshwardhan, an investor relations expert of Mutual, Delhi. "It actually is more like the chicken-and-egg story. The economic reforms programme could not have come at a more opportune time for the Indian capital market. Opening up of the Indian economy coincided with a falling interest rate regime in the international market. Asia began to present itself as one of the major emerging markets for foreign institutional investors (FIIs). Naturally, a critical portion of these funds was parked in the Bombay Stock Exchange. The stock market indices began to soar and so also the returns to investors from equities", he said. This led to a sea change in the country as companies found their interest costs plummeting and their profits rising as a logical corollary. Higher profits and robust balance sheets triggered share prices of these companies to never-before levels. Those who had invested in their equities gained as dividends began to pour in. "The ESOP culture (employees stock option scheme) began to spread its wings. There is, of course, another point of view: that ESOPs have not been very successful considering the high attrition rates in IT companies. Nevertheless, introduction of ESOPs helped in creating the equity culture," said Shashibhushan, Head-Western Region & Bangalore, IL&FS Investsmart Ltd. For one, ESOPs have given access to quality money at a very young age and also helps people get initiated to the equity market much earlier. For instance, if a person, in his early or mid-twenties joins a company such as Infosys, he is immediately given an ESOP, which is encashable at a certain point of time in future. Effectively, for this new recruit merely being eligible for an ESOP gives him a headstart in the equities market. At the macro level, this has developed a culture of investing and stock markets have emerged as a preferred investment option, he pointed out. "To some extent, there is also the herd mentality at work. Peer-group influence played its part as possessing equities and discussing market trends became fashionable," Harshwardhan said. "The focus is now more on high-return savings. Although equities are risky, the high incomes help in hedging these risks," according to Shashibhushan. What’s more, investors are now better informed. Sourcing of information and analysing them are now tailor made to suit every investor needs. Even without professional help from financial market analysts, news and information about the capital markets are available from the open domain. "Information explosion has definitely played a vital part. For the non-initiated earlier there was limited information available. Now, technology and the media has changed all that", Bhushan pointed out. Technology and the coming of demat account have meant that even housewives are trading in the stock-exchange through the Internet and the mobile phone. "The role of technology is immense and it would not be wrong to say that the highest positive interference of technology has been in the area of capital markets. Anybody can trade in the stock-exchange through the click of a mouse and it is like buying 100 per cent gold as there is no bad delivery," says Pawan Vijay, former President of ICSI and an investment analyst. Dhirendra Kumar concurred with this opinion. "Technology has meant that there is no need for a stockbroker to get a deal. The entire transaction is paperless, reduces time and brought about transparency." "For a variety of reasons, the word broker had assumed a negative connotation in India. With a largely risk-averse low-income population, this sceptical image of a stock broker did not help the cause of capital markets as people were disinclined to enter the equities market, just in case they lose their money," Harshwardhan said. This is another major reason, why the younger people of the middle to high-income group are investing in equities now. "There is no gainsaying the fact that the younger generation are tech savvy. Importantly, they are not afraid of using technology just as a facilitator even though there is no physical presence of anybody in person", he pointed out. Moreover, while the first time investment decision may be just based on word of mouth, the subsequent ones would surely be informed decisions. "After tasting success, the investor sources his own information and there is no dearth of it," he said. The strengthening of the regulatory environment is another critical factor in boosting investor confidence. Stringent compliance norms and the evolution of Securities Exchange Board of India (SEBI) as a strong regulatory authority has played an important part in triggering the rally. "Today investors are confident that their interests would be protected and strict punitive measures are in place in case of default by the companies. Young people believe their money is not in the wrong hands. There is an inherent trust in the system," Harshwardhan said. As the bulls are having a jig and young investors partying hard, corporates are willing to play ball. Over the next few months, a number of IPOs are slated to hit the market with an estimated combined size of several thousand crore of rupees. This may well push the point of equilibrium to a new level. The Sensex is at a new high today. Nobody is willing to a hazard a guess about tomorrow. The heights are staggering. — Photos by Mukesh Aggarwal |
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Young people who never dreamt of owning cars till their thirties are now tempted to buy their first cars as well as invest in new homes.
Anybody can trade in the
stock-exchange through the click of a mouse. It is like buying 100 per cent gold as there is
no bad delivery.
Young people believe their
money is not in the wrong hands. There is an inherent trust in the system.
The introduction of ESOPs helped in creating the equity culture and initiated investors into the stock market at a much younger age than before.