“Today there is a major aspirational class in India that wants to invest for growth….According to the Association of Mutual Funds, the assets under management of the mutual fund industry in India in 2014 were around 10 lakh crores. In these eight years, by June 2022, it has increased by 250 percent to 35 lakh crore. That is, people want to invest. They are ready for it”. This is Prime Minister Narendra Modi speaking at the inauguration of the International Bullion Exchange in GIFT City, Gandhinagar on July 29, 2022. These are not words that India has ever seen coming from the political leadership. To the contrary there has been a deep-seated suspicion of markets in general and stock markets in particular. This discomfort with markets has led to decades of sub-optimal investment options for Indians wanting to keep savings ahead of inflation.
A change in the narrative to an I-want-to-be-rich one has the potential to drive the next few decades of economic growth
If you have ever found yourself wondering why the accelerator pedal is not doing its thing, and then looked down to see that if handbrake was on, you know exactly what India’s young are going through – a desperate urge to be rich, but being held back by an old poverty narrative that paints the rich as morally corrupt and evil.
A new-found confidence over the well-handled Covid-19 crisis found its way into Budget 2021. This is reflected in three aspects of the budget. One, the finance minister ignored suggestions to tax the rich with a higher surcharge or a Covid-19 cess. Two, the government has gone for growth with a large push on capital spending. Three, the FM has cleaned up the balance sheet of the government and removed the anomaly of using off-balance sheet items to show lower borrowings.
The pandemic has left the equity market in a bad shape. Data reveals that this is perhaps the worst decade for equities, with point-to-point returns showing them in a poor light. In such a situation, equity naysayers might be quick to point out how FDs are better than equities. But does that hold true in the long run? What is the ground reality? How should investors stay optimistic amid all the predictions?
Join us for a discussion, where experts decode the road ahead for equities. On the panel are A.Balasubramanian, MD & CEO, Aditya Birla Sun Life Mutual Fund, and Saurabh Mukherjea, Founder & Chief Investment Officer, Marcellus Investment Managers. Monika Halan, Consulting Editor, Mint, is the moderator. #mutualfundmantras
If a tweet was all that was allowed to understand the Reserve Bank of India’s (RBI’s) announcement on Friday, it would read like this: RBI says ‘lend’ to banks. Banks say: you are safer, we keep our money with you and big companies that are already liquid. RBI reduces the interest on money banks keep in the central bank (reverse repo down by 25 basis points), RBI gives ₹50,000 crore to banks through targeted long-term repo operations or TLTRO 2.0, and another ₹50,000 crore to Small Industries Development Bank of India (Sidbi) and National Bank for Agriculture and Rural Development (Nabard) to lend to microfinance institutions (MFIs) and non-banking financial companies (NBFCs).
Ahead of an event, we were gathered in the 25th floor office of the chairman, in the iconic Bombay Stock Exchange building. A building you enter after paying obeisance to the five foot high, eight foot long, one tonne raging bull stationed at the entrance to the building. A group of fund managers, mutual fund CEOs, intermediaries and I, the outsider from Delhi, are hanging around waiting for the event to begin. The talk, four days before the exit poll, was of course on the results. A straw poll around the room yields a base line 230 seats to the BJP and the possibility of a stand-alone majority government again. And what happens to the market? A 10% jump is not unexpected if the BJP gets a clear majority—markets like stability and continuity—say some of the fund managers present.
It takes as much time to get from the airport in Bengaluru to the Indian Institute of Management Bangalore (IIMB) as it does for my flight from Delhi to the city of snarly traffic. I was going to speak to a mixed bunch of students at IIMB later that day and to pick me up was a first-year MBA student. The journey was long and before long we were deeply immersed in the tricky topic of gender. I was curious to know how the gender equation has changed for a generation that was born after I had graduated from college. I remember the faces of all the girls in my class, both in undergrad and postgrad, who were married off before they finished the degrees. Those who survived the ceremonial kick-off got into jobs and then into married life. They spoke about doing two jobs—one at work and the other at home. The Indian marital household that sits in the top 1% of the population in education and wealth was happy to accept a “working” woman and her income, but did not like it when work got in the way of the household chores and duties.
A recent story reports on mis-selling and fraud by a bank in rural Rajasthan where they allegedly made bank deposit customers put their signatures on life insurance products of a group firm. While the story of people of small means being cheated out of their money is worrying enough, what is of greater concern is that this problem is not limited to one insurance company or bank, or location. Life insurance mis-selling and fraud by bank branches is systemic in the country. The evidence to this statement comes from three sources. The first is anecdotal: almost everybody who has a bank account has a mis-selling or fraud story to tell about life insurance. For those who superciliously turn away from anecdotes, there are three academic papers that nail the problem. In 2014, two economists and I, wrote a paper estimating that policyholders lost over Rs 1.5 trillion from mis-sold life insurance plans between 2007 and 2012. In 2017, I published another paper that mystery shopped bank branches to catch mis-selling. I found that bank officials lied most of the time on features around costs and costs of early redemptions to potential customers. A 2015 paper by Anagol et al find that agents overwhelmingly recommend life insurance products that are unsuitable to the customer but get the agent high commissions. Three, two government committees, Swarup and Bose, have found life insurance to have very high front incentives that cause sharp sales and fraud. (Disclosure, I have served on both the committees).
The debate around the Financial Resolution and Deposit Insurance (FRDI) Bill is good news. The citizens of a country must engage with a potential law that affects their money. I wrote on the issue last week, where I argued that the FRDI Bill proposes an early warning system for crisis in financial firms. You can read it here. Based on their financials, banks and other financial firms will be classified according to their risk. When the risk becomes more than moderate, a set of data reporting protocols kick into place, giving the system ample time to prevent the bank (and other financial firms) from failing. If it indeed does fail, there is a process-driven system for mergers and take-overs. It is only when all of this fails that a bank goes into liquidation. It is like getting a warning 10 miles before the train hurtles towards a cliff.