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How Allocation Towards Financial Assets is Increasing in India | Equities as a % of Indian Household Assets at all-time high levels

How Allocation Towards Financial Assets is Increasing in India | Equities as a % of Indian Household Assets at all-time high levels

Published on 08 April 2022 .Views 173 .Comments 0

The equity cult in India has been growing over the years, with the investment of Indian households in this asset class hitting an all-time high in 2022. According to a recent Jefferies report, 4.8% of Indian household assets worth $10.7 Trillion are in equities (as of March 2022).

Here is a 5 point analysis on the Share of Equities in Indian Household Net Worth being at an All-time High, what are the key drivers of growing Equity assets?

1) India Household Asset Ownership:

India Household Asset Ownership

India Household Asset Ownership

  • The total assets of India are valued at around $10.7 trillion as of March 2022.
  • Out of this total value of assets, Property accounts for the highest in terms of asset holding which stands at 49.4%.
  • After Property, Indians have most of their asset holdings in the form of Bank Deposits which share stands at 15.1% valuing at around $1.6 Trillion.
  • Gold has a share of 15% similar to the level of Bank Deposits.
  • Insurance Funds and Provident & Pension Funds have a weightage of 6.2% and 5.7% respectively.
  • Finally, Equity has a weightage of 4.8% as a total asset held by India. This 4.8% holds values around $512 billion.
  • Simply, Indians have 64% of their asset held in the form of physical assets and only 36% of assets are financial assets. Bank Deposits (with 15.1% share) remain The Preferred mode of investment within Financial Savings, more than 3 times Equities (4.8%).

2) Equities as a % of Indian Household Assets YoY Trend:

Equities as a % of Indian Household Assets YoY Trend

Equities as a % of Indian Household Assets YoY Trend

  • In the year 2006-07, the allocation of Indians towards equity asset class was 3.7%, but it went up to 4.2% in March 2008 on account of euphoric conditions in the market, then it also slumped to 2.2% in March 2009.
  • Post-March 2009, there was a see-saw battle of the percentage of Equities asset class as a % of Indian Household assets and was ranging at the levels of 2.2% to 3.8%.
  • With the entry of Pandemic in the scene, the equities holding % also went down to 2.7% in March 2020, but saw a significant jump to 4.3% in March 2021 and finally 4.8% in March 2022 and is currently at all-time high levels.

3) Physical Assets Still Dominant But Losing Shine Slowly:

Physical Assets Still Dominant But Losing Shine Slowly

Physical Assets Still Dominant But Losing Shine Slowly

  • The weightage of Financial Assets to the overall asset class was 28% in 2014 which has now come up to 36% in 2022, with a rise of 8% in the last 8 years.
  • Whereas Physical assets have lost almost 8% to Financial assets since the trend began in the year 2014, and have a current weightage of 64%.

4) Key Drivers of Growing Equities Assets % in Household Assets:

  • Growing Awareness about Equities
  • Social Media – Improving Awareness Regarding Demat Accounts
  • Digitalization Improving Technology
  • Rising Disposable Income  & Time
  • Increasing Investor’s Resilience- Investors are not in a hurry to Exit after they bought Stocks as individuals are also coming with a view of long-term holdings.

5) Headwinds for Future Inflow into Equities:

1) Valuation Woes:

  • As per the Jefferies report, the valuation of the Indian market is still Expensive despite the sell-off from the Peak level (Though Corrected more than 10% correction from Oct-21 highs)
  • The report does not provide a good entry point at the current levels and gives a view of overstretched valuations of Indian Companies.

2) FPI Outflow:

  • In FY22, FPI pulled out almost Rs.2.75 Lakh Cr from the Equity cash segment which is the worst FII sell-off since the 2008 Global Financial Crisis
  • This FII outflow is more than FII Inflow in the post-pandemic May-20 to Mar-21

3) Rate Hike Cycle:

  • Potential Rate Hikes by US Fed in 2022 – Enhanced Clarity on the roadmap of Policy Rate Hikes by Fed
  • Fed is focusing on US Inflation than Geopolitical Tensions

4) Earnings Upgrade Cycle under Pressure:

  • Earnings Upgrade Cycle of Indian Corporates is under Pressure due to Dual Impact of :
  • Interest Rate Hike – Rise in Interest Cost
  • Sharp Inflationary Spike in Commodities – Rise in Raw Material Cost

What Should Individuals Do?

The rising awareness of Equity as an asset class for Indian Households is quite positive for the individual as well as the economy. The Equity holding % as of Total Assets has increased significantly and is expected to continue to rise with some headwinds on the way. Here, one should follow a long-term investing approach with full discipline and have a staggered manner of investing.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.

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