Indian Equity Culture – hostage to trends and fads

Indian equity culture is a notorious concoction of temptation, noise, and information scarcity!

India is indeed a statistical marvel! A country of over a billion people with a $1 trillion plus economy, a middle class population of between 300 million-500 million, around 117 million Smartphone users, and a stock market that boasts capitalization of over a $1 trillion. It’s a country that for some time now has been a data hub to the world owing to its burgeoning BPO, KPO, and IT analytics establishments.

It wouldn’t be an exaggeration then if we call India a land of hopes and promise largely because of her compelling statistics and vast body of data about her economics, consumers, and demographic trends. Ironically, a country washed over by such great proportion of data points has failed brilliantly so far in arming her citizens with actionable information on a wide range of matters. One such class of citizens is the ever vulnerable retail investors and the matter here is about building an equity culture.

The market regulatory bodies SEBI, AMFI have worked hard with the market participants like brokerage and fund houses to push the envelope on investor education since the last two decades. Interestingly, SEBI over the past few years have incentivized the equity culture through a slew of benefits like IPO quotas, price discounts, and tax breaks et al. Nevertheless, the success of these initiatives is highly debatable at best.

Investor Awareness Programs – Temptation or Education?
The brokerage, fund houses, and financial media in India are but dubious stakeholders in the grand project of building equity culture in India. Building an equity culture is an idea and not a trend. Retail investors are often flooded with NFOs and MF schemes when much of the milk has already been skimmed by the fat cats, namely FIIs and HNIs. Recall, not many schemes and NFOs were launched between 2009-2013, when the valuations were cheap and upside price opportunities for long-term retail investors were immense.

Unsurprisingly, during these years Sensex rose over 100% where as retail investors participation grew by just 33%. Come 2014 we have been flooded by a plethora of NFOs and MF schemes when many stocks already have gained, on an average, by well over 30%-60%. Of course, there is immense potential for India’s economy to grow in the next 5 years but isn’t investing supposed to be independent of fads, trends, and upturns?

Building a culture of investing is about being disciplined and regularity. The stakeholders intending to build a robust Indian equity culture must focus on values that are totally independent of market fads and trends. Importantly, investor education is not about tempting gullible investors into overbought and overvalued markets, which has sadly been the only form of education imparted by the equity culture stakeholders.

Financial Media – Noise or News
Indian financial news media (print and TV) has done little in terms helping retail investors understand markets better. Much of what is spoken on business TVs and print media is about events with great importance to the momentum driven portfolios of FIIs than the long-term retail investors. The brilliant case in point is turbulence in Iraq. While oil import risk arising out of the deadly humanitarian crisis in Iraq could potentially affect inflation levels, but the risk to the Indian economy is overblown.

Geopolitical developments are akin to arbitrage opportunities as in they last for a very short duration of time. Investors with flamboyant investment styles are most likely to be affected by such short-term developments than the long-term retail investors. Moreover, not many media or publishing houses aid retail investors by conducting studies on long-term performance of different investment styles, MF schemes (hybrid, capital protection, and arbitrage et al) that could possibly serve as a reference point for small investors for making informed investment decisions.

On the other hand, major data releases like economic indicators, industrial production, Sensex/Nifty movements, and market outlook are expressed in a technical parlance about which much of the retail investors are oblivious. The fact that a major chunk of retail investors make their investment decisions based on tips, advice, and suggestions from a heterogeneous group of brokers, friends, and family members talks a lot about the ineffectiveness of the Indian financial media companies.

As the things stands now the nexus of brokerage, fund houses and financial news companies have succeeded in luring retail investors into yet another Indian bull rally. As I wrap this article the Indian equity culture is a notorious concoction of temptation, noise, and information scarcity!