To market, to market,
To buy a fat lot of
shares

A booming economy, high disposable incomes and online stock trading are attracting more and more young investors to the equity cult. Shveta Pathak on the growing investor community

IN Mandi Gobindgarh, a small town near Ludhiana, when 22-year-old Satinder Kaur, a student, asked her father for Rs 10,000, he was obviously curious. He was further surprised when his daughter said she wanted the money to invest in shares.

"Shares require intelligent investment. I feel quite excited with the fluctuations that the market shows and feel good decisions can actually give handsome returns," feels Vikas Sharma, another student, who says he got over 100 per cent returns from the market within a month two years ago. That was when he began investing. Since then he has lost and also gained. But shares remain a favourite investment option.                                                             Vikas Sharma

“Shares require intelligent investment. I feel quite excited with the fluctuations that the market shows and feel good decisions can actually give handsome returns.”

Hardip Singh, an agriculturist in Amritsar, too, was attracted by the high returns the capital market offers. "I know they say things like studying in detail about the company and being careful. But all I know is that if you have a good investment adviser and money, the returns you get here are more than other investment options like banks, PF, etc."

The enormous growth in the economy, positive projections, high disposable incomes and technology have made trading possible at the click of a mouse, and the share market seems attractive like never before.

Not only has the entry age of investors into the market been significantly reduced, investors today come from all segments of society. They could be students, teachers, housewives, businessmen or even farmers.

Ludhiana Stock Exchange is the trading hub in the region

Online trading is popular with tech-savvy youth Photos: Inderjit Verma

"Earlier, say 15 years ago, people began investing in shares in their mid or late 30s, now you find investors entering the market in their early 20s," says H.S.Sidhu, executive director, Ludhiana Stock Exchange Association. Citing an example of the popularity of the share market in recent years, Sidhu says when he had asked students at a seminar which was the most popular building in India, to his surprise they did not name any historical building but the stock exchange building in Mumbai, which they saw and visited often. This speaks of the popularity stocks have attained in the last decade or so. Fifteen years ago, one would not imagine students discussing shares."

This change has been brought about by high disposable incomes, thanks to multinational companies that offer high salaries; an increased awareness; technology as well as the tag of ‘high returns’ attached to shares.

Disposable incomes

Thanks to globalisation and entry of multinationals, salaries are touching an all-time high. According to a salary survey by Data Quest-IDC, called the DQ-IDC survey, year 2004 saw an average hike of 17 per cent in salaries in IT companies. Last year, 22.3 per cent employees with an experience between two to five years drew salary between Rs 4.6 lakh and Rs 6 lakh, whereas 8.4 per cent drew salaries between Rs 6.1 lakh and Rs 8 lakh.

Employees with 5-10 years of work experience 21. per cent drew salary between 4.6 lakh and Rs 6 lakh and 20.7 per cent employees drew between Rs 6.1 lakh and Rs 8 lakh.

The service industry ropes in youngsters even while in their teens. At present, call centres, financial services and marketing are emerging as the main employment-generation sectors for youngsters.

"Besides earning well, youngsters also have a high risk appetite. The result: investment in shares," points out Amitabh Nijhawan, vice-president, marketing, India Bulls, Chandigarh.
Vikas Sharma substantiates this view. "Even before I started my MBA, I began working, and since I did not have any liabilities, all I had to do was invest most of my earnings, which is when I went in for shares. As my first investment gave me good returns, I have not stopped investing in shares. Right now, I am not interested in bank deposits and other options. I think I can make good money in the share market."

Gains of technology

The market is enjoying benefits of rapid technological developments. V-sat has enabled brokers to have terminals even in small towns and through online trading, investors are buying and selling on the computer.

"Earlier markets had manual deliveries, today everything is electronic. In the past, the percentage of bad deliveries was as high as 30-40, now it is nil. After computerisation, the major change was the option of Demat or dematerialisation, which happened around six years ago. Demat is a process of transferring shares from physical (certificates) form to electronic form. Earlier the investor had to go to a broker, now one can trade anywhere," says Sanjay Tandon, promoter of Competent Finman, a leading broking firm in Chandigarh.

One can open an online account through a broking firm or bank, as it facilitates paperless and quick trading and enables the investor to know the price of any stock at any time. It also offers details on price history of stocks and financial research.

Brijesh Kochhar, a bank employee in Ludhiana, who has opened an online trading account, says: "It saves me from the botheration of visiting a broker every time I want to invest. The time gap between one’s decision to buy a particular share and then going to a broker for the transaction, many times results in cancellation of the purchase itself. Moreover, this way, the only expense I incur is on the Internet."

Sidhu says that online trading has also resulted in an increased awareness among investors. "When people go to brokers for transactions, they also begin to rely on brokers’ advice for investment decisions. However, with online trading, an investor starts reading about market trends, which improves his knowledge. Once a person opts for online trading and gets used to it, he does not want to trade through other means."

There are additional benefits to online trading like immediate confirmation of a transaction, higher transparency, etc, that attract investors.

Targeting rural markets

Thanks to technology, trading is no longer restricted to metros and big cities only. Leading broking firms have opened offices in small towns too. With the growing popularity of commodity trading, some firms are making all-out effort to explore rural markets.

"We have our offices in big cities and also in small towns. Now we are looking forward to investment from the rural areas," said Nijhawan.

He said the company, through its relationship managers, was contacting investors in rural areas and exploring opportunities for setting up offices in villages. "Things are much simpler now. Since rural investors are particularly inclined towards commodity trading, there is bound to be more investment."

Media, financial advisers

The increasing number of business channels on television has created more awareness among people about investment options. "One does not have to search for information now. Every channel devotes time to impart extensive information about diverse investment options and their pros and cons. Since, business channels are addressing personal queries, it has made the investor more confident and aware. He chooses shares depending on his risk-taking abilities," Sood says.

Where to invest? This question comes to every investor. Earlier people relied on the word of mouth or, at the most, their brokers. In such cases, the risk involved was higher; many investors lost their money due to wrong advice and hesitated to invest again in the capital market.

The scenario has undergone a sea change now. Most banks have appointed financial advisers, who help one manage one’s investment portfolio, and financial services, including expert advice. These facilities are also offered by companies.

"My investment adviser helps me decide which shares to go in for. With expert’s guidance available at hand, I now find shares a safer option than I did around five or six years ago," says Narinder Kumar, a retired professor.

Banks are also reporting a rise in the number of their customers availing themselves the services of advisers. "People feel comfortable with their investment when they get expert guidance. Most of the people who seek such guidance include businessmen and retired citizens," reveals Gurprit Singh, a bank employee.

High returns

For a decade, the economy had seen average real growth in GDP of about 6 per cent a year. The hope now is that it is about to take off on a markedly steeper growth path of 8 per cent a year or more, and keep it up. The Indian economy is poised to become the third largest economy by 2032, according to Goldman Sachs. The encouraging statistics are attracting foreign institutional investors (FIIs) to the Indian capital markets.

The Bombay Stock Exchange Sensex soared past the 8,000-mark for the first time in the stock market history on September 8. The journey from 7,000 to the 8,000-mark took only about two and a half months.

In the process, the country’s market capitalisation (investors wealth measured by the value of all shares listed on the BSE) soared from Rs 4 lakh crore to Rs 22 lakh crore, around $ 490 billion. Even as late as July this year, India’s market capitalisation reportedly was $430 billion. India now ranks fifth in the Asia Pacific region and remains ahead of China ($410 billion).

Big corporates and mutual funds are investing in equities in a big way.

"Though it is FIIs that remain the major contributors, one cannot ignore the contribution that a retail investor makes — be it direct or through options like mutual funds," says Tandon.

"Particularly in the case of mutual funds, good returns in the market have led to introduction of a diverse range of products with varying risk levels," opines Sidhu.

For small investors, it is returns that play the key factor in opting for shares as an investment. Long-term investment in equities has shown higher returns than bank deposits, gold and provident fund. "Equities have given an average annual compounded return of about 20 per cent in contrast to about 9 per cent expected returns from fixed income securities, which are still showing a declining trend. On a compounded basis, this 11 per cent gap would show a significant difference in maturity of wealth to investors over a 20-year horizon," says Kamal Sood, branch in charge of IL and FS Investsmart, a leading financial services provider.

Experts, however, are quick to assert that only long-term investments can assure sustained money in capital markets.

Diverse options and added convenience has had more people opting for shares, which, sure, is a positive signal for the economy.

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