“A farmer has got to sow, a warrior has got to fight, a writer has got to write. Those are the only things that keep them sane”.
Tainted memories do not allow me to reproduce the above line with exact precision nor does it allow me to recall the prominent personality who wrote it.
It has almost been a year since the idea of writing an article on the aforementioned title crossed my mind. Blame it on my laziness or maybe my crazy schedule, but finally I’ve started writing on it.
Before I express my views on the topic I would like to narrate a short incident that took place on the eve of Christmas 2011.
I was hosting my birthday party. Just a few family members and friends.
My uncle whom I consider my godfather called upon me to greet me. Inevitably the topic of stock markets came up. He, a stock market veteran since a good 30 years, asked me a simple question: where will you invest if you have 10 million dollars? I must inform you how much I detest those MBA guys, but right then I gave my uncle the answer any MBA guy would give. Distribution of wealth in various stocks, gov bonds, commodities et cetera. His response if not the most extraordinary was certainly not customary. He laughed the topic off and avoided it at large.
Before the end of the day I went up to him again and pursued the answer to that inquisitive question. His answer, most surprising and after some hindsight most brilliant, was that he would hire a young artist to paint Marilyn Monroe and use the rest of the money for the sole purpose of enjoyment.
The first thought that came to my mind was how my uncle, who by the way is above 60, knows Marilyn Monroe!
His answer got me thinking about the mentality of Indian investors (the ones who invest in stocks). The reason why my Uncle gave that particular answer was that the Indian investors are losing faith in stock markets. Even though the market has risen considerably during the past few month the reason of such has rally has been Foreign Institutional Investors. This can be easily backed by data provided by NSE which shows DII’s have been sellers in the market since quite some time and by the fact that some of my own clients have scrambled away with what was left of their capital. Thus it is quite safe to say that retail Investors have at large missed quite a spectacular comeback.
It was much expected that they start putting their money as soon as markets recover but that was not to be. To date DII’s have been sellers.
The blame for this, well it goes to many:
1. Euro zone crisis: the crises have very much affected the entire world. One could have never wondered that a Bond rate or GDP data could affect stock markets around the world but sure it does!
2. Unprecedented oil rally: Oil rallying from $50 to $115. What’s more is left to be said (the sanctions imposed on Iran only worsens the scenario).
3. Policy Paralysis: The Government of India doing what it does the best i.e. absolutely nothing.
The government has remained stagnant for most part of its first term providing the markets with nothing it hoped for. Although the Government has initiated rolling out policies (the unlikely heroes being the rating agencies) no clear path has been set out to get the growth and deficit in place.
Policy paralysis has not only affected India but other countries as well as pointed out by Mitch McConnell in his recent article ‘Time for a serious deficit plan’
The above mentioned are few of the headwinds affecting India and unless these are solved the retail participation shall and will remain negligent.
February 7, 2013