It took $500 billion in asset write-downs to bring the more than $13 trillion-dollar American economy to nearly a grinding halt with a list of casualties that would have been the envy of any asset manager in happier times. Bear Stearns, Lehman Bothers, Fannie Mae, Freddie Mac, Merrill Lynch, and insurance big boy AIG. Naturally the American economy which lives on leverage (borrowing more than it earns) looks to be in a deep mess.
Since the economic liberalization in 1991, India has seen staggering GDP growth backed by relaxations in FII and FDI norms, catapulting the benchmark market index to 21000 levels in January 2008. The market is down nearly 50% and the mood remains apprehensive and pensive.
But despair is the time when true character is revealed, be it of any organization or individual - when pushed to the corner, its time for the champion boxer to take one more up his chin and still stand his ground.
Will India survive?
The point here is to know can there be a simple way for a small investor to instill confidence back on the street.
As markets across the globe are looking to pack their bags for a long time, in this entire mess one investor segment just might prove to be the saving grace: you and me. On 2nd April 2007, the BSE Sensex closed at 12455.37. on 31 March 2008 it stood at 15644.4, returning a cool 25.8%, year-on-year. RBI data for 2007-2008 suggested that only 10.5% of household savings found its way into the equity and debt markets amounting to Rs 77000 crore, the rest probably cooling its heels in the banks as currency or currency equivalents (Gold). This means that domestic households have matched the $15-17 billion brought in by FIIs for FY ‘08. Now with FIIs deciding to retreat and having already pulled out just over $9 billion from domestic markets since January ‘08, they would be rethinking about their equity allocation for India in the future. This makes way for a huge opportunity to Indian households who by increasing their share of investment in the domestic markets can hope to turn its tide as well as their own. As an individual investor, every incremental investment shall improve his/her long term (>1 year) returns. At the same time, incremental investment in gold would hedge him/her against any inflationary pressure and any unforeseen down turn.
50 million people in India are at present in the middle class category. This is expected to balloon to 583 million by 2025 according to a study by McKinsey & Co. This represents the real buying power. Even if we assume that these 50 million actually only save and their savings find their way into the banking system, imagine what a higher percentage of investment will do to the economy if they decide to flirt a bit more with the investments to savings ratio. We need to realize that FIIs are like mercenaries who will flee their camps first when the chips are down and that domestic investors are the real face of the investment community.
November 6th, 2008 at 10:32 am
Good fodder for thought for the Aam Admi.
November 18th, 2008 at 12:41 pm
Though global financial meltdown has hit India also, it will survive. The regulatory norms are every strong which will protect the country.
November 19th, 2008 at 6:58 pm
Cool topic heading - you and me. Looks like a movie title, but its turns out to be an article which can actually help us be self dependent for our economy
November 19th, 2008 at 7:02 pm
Last paragraph, makes me feel that population can actually help in making a country economically sound.
If every individual starts realising their role, then India can be self dependant
November 19th, 2008 at 7:06 pm
Excellent presentation of facts, you are right FII are the first to flee at the time of crises.
November 19th, 2008 at 7:08 pm
We are also getting into a habbit of leverage, I hope we learn from what happened in US.
But in India the market regulators are capable enough to protect us from what US is going through
November 19th, 2008 at 7:11 pm
Great presentation of facts and figures, You are right in saying domestic investors are the real face of investment community.
I have read all your articles, i think you have great amount of knowledge with respect to global finance and ecnomics.
Hope to see some more articles from you sir.
November 20th, 2008 at 9:47 am
i must thank everyone for their positive reviews , surely more interesting articles are on their way .
well to sum up , and to respond to all the comments posted for my former and later article i think we have not been safe as the BSE SENSEX is still over 60% down and lots of people have lost money n lives . there has been cosiderable wealth erosion as well as rupee to dollar is now Rs50.50 from Rs 40 not so long ago.
thinkin that government is smart to save us from all that mess is little tricky as they are from the same Harvards and Stanfords of the world which also the Federal chief has attended , so nothing new they would have learnt .
I think the fact tht we have been going little slow on development ( barring over 9% gdp for last 5 years ) and have been conservative in new policiy initiatives( like relaxation in higher FDI limit in banking sector ) have been a blessing in disguise .
Lets hope that the future holds better investing opportunity and our ecoomy is in a sound shape by the time we come out of the mess created by our friends next door .
December 18th, 2008 at 12:00 pm
I believe Indian economy is the victim of FII working module…had we not allowed their intervention in our economy we still would have been better off. This article very well presents the current scenarios…however i feel India is still safe as people over here are not spendthrifts and believe in savings if anything.
December 18th, 2008 at 3:25 pm
Hi Anurag,
I must say Fabulous article …full of facts…
but tell me one thing if the portion of household savings moved towards equity was equal to 10.5% in year 2008…do you think retail investors will increase their exposure in coming years after burning their fingers in this crash ???…or they will prefer to stay away from such volatile markets ?/