Retail investors did not benefit from wealth creation in stock market: Kotak Securities

Have Indians missed the bus on equities? A report by Kotak Securities shows that almost 25% of the Indian stock market, comprising BSE-200 Index, is owned by foreign investors. Indian retail investors own only 7.1% of the market directly, and another 10.1% through life insurance companies and mutual funds, while this figure has not changed much over the past few years.

The share of FIIs has risen consistently over the past two decades while the share of retail investors has remained stagnant. Over the past 13 years, the share of FIIs has gone up by 10% to almost 25%, while the share of Indian households, which includes direct and investment through insurance and mutual funds, has gone down by 10% to 17%. This would suggest that retail investors have not really benefited from the wealth creation in the Indian stock market.

Kotak Securities is of the view that India will see a massive wealth creation over the next decade as it evolves into a middle-income economy over the next 10 years, from a low-income one. However, the low ownership of equities by Indian households may prevent them from participating fully in the likely growth in value of Indian equities.

Ironically, Indian households have invested about $207 bn in gold over the past seven financial years, while foreign investors have invested $103 bn in India’s equity market. It seems that Indians have bought foreign gold as the country imports its entire gold consumption, while foreigners have purchased the Indian equity.