Indians Are Saving More & Investing Differently
Indians Are Making Bold Investment Choices & We’re Here For It!
A new report shows how the spending behavior of Indians have changed during the pandemic along with their investment choices.
Jump In Household Savings
A report by State Bank of India (SBI) economists, as mentioned by TOI, showed that households in India saved a massive ₹7.1 lakh crore during FY21. This comes as a pleasant surprise as our country was reeling with the pandemic during that time. What further adds to the surprise is how the first and second wave deeply affected household savings.
According to RBI’s preliminary estimate, household financial savings were at 8.2% of GDP in the third quarter of 2020, after being at 10.4% of GDP in the second quarter (ended September 2020). The ratio of household (bank) deposits to GDP plunged to 3.0% in the December quarter of 2020-21 from 7.7% in the previous quarter.
Household savings were increased by Indians as a precautionary measure due to the uncertainty regarding future income, risk of unemployment and unexpected expenses that came as a part of the pandemic. As new variants continue to emerge, we can assume that Indians have begun to cut down on their expenses to increase their savings to face the above hurdles.
No Longer Into Gold
The pandemic has definitely made people reconsider their investment choices. The investing world is changing, with more millennials and Generation Z entering the arena. Gold is no longer considered the best safe haven asset by many. Though many want to reap the benefits of investing in gold, they have found other options such as sovereign gold bonds, gold ETFs (Exchange Traded Funds), instead of investing in physical gold and silver.
Is this just a shift that has happened between generations or is there any other reason behind it? The obvious answer would be the dull returns offered by gold over the past couple of years. During 2021, gold prices plunged 4.2% to ₹47,895 per 10 grams against the price of ₹50,005 for 10 grams of gold during 2020. Silver also plunged considerably amid increased volatility in industrial metals.
But Where Are They Putting It Instead?
If Indians are slowly moving away from physical assets, where else are they putting their money? In stock markets, of course. Since the lockdown was announced in March 2020, around 10.7 million new demat accounts (for trading) were opened in the COVID-affected year. This number was nearly double of what was the average trend in the previous three years. A study by NSE as mentioned by ThePrint, showed that retail investors had the most diverse portfolio in 2020, investing in 1,900 stocks, as compared to Foreign Institutional Investors (FIIs).
The SBI Survey has said that nearly 221 lakh individual demat accounts were added in April – November 2021. There were also several IPOs (initial public offerings) in the past two years, with most of the firms seeing a strong response from investors. ₹89,066 crore were raised through 75 IPO issues in April-November 2021, which is much higher than in any year in the last decade.
Where The Money Is…
Despite the global pandemic and the uncertainty that came with it, the stock market has risen steadily for the past 2 years. At the beginning of April, Sensex was at 28,265 and since then, the index has jumped more than 120%. At the same time, the Nifty index has also risen over 130% from the pandemic lows.
Even global investors have flooded to invest in the shares of the financial, industrial and technology companies, with the MSCI Index gaining over 30% in 2021, which is nearly twice the return of the global index. Jiban Mukhopadhyay, a corporate economics professor emeritus at the S.P. Jain Institute of Management and Research, told The New York Times that, “There is pent-up demand among the upper middle class, who have been rushing to the market.”
The previous generations relied on Fixed Deposits, Physical Gold, Insurance Policies to grow their wealth. However, the current situation has made people reanalyze their spending behavior and investment choices. So, when people were left with surplus money at the end of their month, they promptly put it in various financial products to grow their wealth, save taxes, and achieve their goals.
This shift has a lot to do with the increasing awareness amid people about mutual funds and stock markets. There have been a lot of platforms raising awareness about various products, including mutual funds, digital gold, smart deposits, ETFs and so on. This awareness has clarified misconceptions around the topic, boosting people towards choosing high-risk assets.
With household savings increasing and Indians choosing risky instruments over conservatives ones show how the financial behavior of people are dramatically changing. The rise in household savings will also speed up the nation’s recovery and boost its growth. Despite the news about the virus continuing to shake the global markets, we believe that Indians will continue to stay invested in these assets and continue to explore more investment opportunities.