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  • Is the fear of EQUITIES over?

    Article by Jayant Pai in The Tribune, October 16, 2017

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    Despite the myriad benefits of investing in equities, for most investors, equities are something to be feared rather than respected

    Jayant Pai :
    Indian investors have traditionally shied away from equities, preferring fixed deposits, gold and real estate instead. While it seems rather anachronistic to talk about the fear of equities when stock market is touching new highs and retail investors are avidly investing in equity mutual fund schemes, this is not the first time this is happening.

    There have been at least three other instances in recent history (1986, 1992 and 2007) when Indian investors flocked to equities but were left licking their wounds when things soured. Long periods of 'equity-aversion' followed.

    Sadly, despite the myriad benefits of equity investing, for most Indian investors, equities are something to be feared rather than respected. At best, they are seen as tactical 'fair-weather friends' rather than an enduring source of wealth creation. A few reasons for this are:

    Very often, youngsters avoid equities because their elders instill fear in them. Every family apparently has one instance of someone losing money due to speculation in equities (mistakenly classified as 'investment' in equities). These instances are assiduously recounted - and often amplified - with the aim of dissuading the next generation from repeating the mistakes. Consequently, many youngsters eschew equities without ever having any experience of their own.

    Equities are regarded as one of the most transparent investment vehicles. However, this can serve as a double-edged sword. Watching prices change every second on TV can be exciting...and scary.

    Random, unexplained short-term movements put off many potential investors, despite the best efforts of industry participants to explain that this volatility smooths out with time.

    Media histrionics
    Bombastic headlines following every rise and dip titillate but also deflect attention from the real issues. While there are some worthy publications who constantly highlight the virtues of long-term investing, sadly their sagacity is lost amid the din of those playing to the gallery.

    Lack of numeracy
    There are several educated people who, while being enamoured by the fact that fixed deposits or gold are not as volatile as equities, are completely oblivious to how the ravages of inflation can wreak havoc with one's financial well-being and how equities can serve as a very good hedge against inflation. Hence literacy often does not go hand-in-hand with numeracy. So does this mean that investors will forever see equities as tactical rather than strategic investments?

    One heartening development is that Systematic Investment Plans (SIPs) are being seen as a good way of 'playing the markets'.

    Unfortunately, it is a fact that unlike in the case of life insurance, it is very easy (and tempting) to discontinue one's SIP instalments during market corrections. This often precludes investors from enjoying the full benefit of instituting an SIP programme.

    The past few years have seen an unbridled run in the stockmarket...and a correspondingly increasing investor base. Many industry watchers are sanguine that the recent moves towards digitisation and 'financialisation' of the economy will spur a permanent shift towards equities.

    While this belief is seductive, only time (and perhaps a deep correction in the index) will tell whether things are different this time round...or whether this is simply the next chapter of the same boom-bust saga of the past thirty years.

    The original article could be seen here.

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