The equity cult in India has reversed as investors have not made money and lost faith in markets, HDFC Chairman Deepak Parekh has said.
“We have a large number of savers in the country. The household savings rate is high but people are comfortable with bank deposits and gold. Why are people not invested in equities? I think the answer is that we have not sold our equities well,” he said in an interaction with Morgan Stanley analysts. “People have not made money and lost faith in markets.”
The equity penetration is just five per cent in India, considering direct investments in stock market and indirect participation through equity mutual funds. There are just about 20 million dematerialized, or demat, accounts in India. Add to that, there are about 38.5 million equity mutual fund folios in the country, according to Sebi data.
Parekh said HDFC had not issued equity abroad but its Indian shareholders had sold out. “When HDFC got listed, 90 per cent of shareholding was domestic. Today, 74 per cent is foreign,” he said.
According to Parekh, investors’ confidence in equity markets been shaken, as they have lost a lot of money. “The IPO markets have been dead. About 95 per cent of IPOs issued in the last two years are quoting at a 30-40 per cent discount to the issue price. Everyone who has invested in such IPOs has lost money. The confidence will not come unless people make money,” he said. “The equity cult of the past has reversed. You can see the inflow into equity mutual funds is so small.”
Of the 40 IPOs that came in 2011, 31 are trading below their issue prices. Investors’ wealth, measured in terms of market capitalisation of all BSE-listed companies, eroded Rs 19,66,295 crore in 2011, the highest erosion in at least 14 years.
High interest rates, slowing growth and lack of economic reforms sapped investors’ appetite for equities.
“India is at a crossroads. The future looks good but the immediate period seems to have headwinds. We need a change in the government’s approach. It has to take decisions,” Parekh said. “For several reasons, decision-making has slowed down. We need to reignite the confidence in the system. Everything is being referred to committees, as individuals are scared of taking decisions. We need to be more speedy with our decisions otherwise we could be left behind,” he added.
