Indians' craze for equity is scary, rude shock likely when bull run ends, says IIT professor

An Indian Institute of Technology (IIT) Madras professor has warned Indian households about a common misconception regarding investments. Dr. M. Pattabiraman, speaking on a podcast hosted by Financially Free, highlighted the dangers of the belief that increasing equity exposure will always result in higher returns, calling it a "dangerous money myth".

A popular name in the corporate circles for financial advice, Dr Pattabiraman advised people against overconfidence in the current bullish market. "People are acting as if the market party will never stop, which is scary," he said, warning about the potential consequences when the market slows down.

He suggested that an average investor should maintain 50 to 60% equity in their portfolio and stressed the importance of fixed-income investments for stability. "For the average investor, 50 to 60% equity is sufficient. A robust fixed-income portfolio is crucial for stability when markets decline," he stated.


Data from Motilal Oswal Financial Services indicates that household wealth has risen, with the financial net worth of Indian households reaching 116% of GDP in the first quarter of FY25, up from 88% before the Covid pandemic. This growth came from increased investments in equities, the data suggested.

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However, Dr Pattabiraman expressed concerns about the behaviour of investors who chase high returns without considering the risks. "I see people switching funds just because one gave a 15% return and another 25%. They act like these returns will continue forever," he said.

Additionally, Motilal Oswal analysts noted a rise in household debt, much of it from unsecured personal loans. Household debt-to-GDP ratio has increased to 42% in Q1 FY25, up from 36.5% before the pandemic. The increased debt, partly driven by stock market investments, poses additional risks if the market declines.

Dr Pattabiraman emphasized the need for balanced investments, particularly fixed income, to safeguard against market fluctuations. "When the market party ends, it’s your fixed-income investments that will save you," he advised.

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