Importance of Stock Market
It is a gambling den, said our parents and grand-parents generally. But I cannot remember meeting anyone as poor, or even middle-class, whose parents or grand-parents invested in the Stock Market! The problem is differentiation. The differentiation between investing for a long term and speculative trading. The problem persists even now in large parts of the country. The result is the great Indian anomaly of being the poor country despite having one of the best savings-to-GDP ratios. And one of the oldest stock exchanges!
Investment in India is buying real estate or buying gold. Saving is almost equivalent to Bank FDs. From our childhood, we are taught the virtues of saving and not investing. Sadly, most of the millennials think this way even now.
Stock market, to me, include equity, debt and commodity exchanges of every hue and type. Last two decades have seen many developments in compliance, reach, divergent products, technology, etc. Though, it is still work in progress, I feel the trajectory is right.
The commercial reasons for having a robust stock market are important and relevant. Funding the growth, cheaper source of finance, individual’s ability to buy or sell any company, a separate asset class, price discovery of an enterprise, route for entry or exit for everyone, a greater liquidity, historically better rates of returns, etc. All valid reasons!
The social reasons are equally important. A stock market is a barometer of economy’s health. Besides, it unlocks enterprise’s value, it provides access to money for your dream project, entry & exit is easy and secular, direct or indirect employment to millions, etc. For a society like India with vast agrarian and huge middle-class population, the stock market has acted virtually as tool for social upliftment. It is eliminating middle-men and aiding the process of price discover, whether for enterprises, individual shareholders or farmers
The stock market also inculcates the habit of investments and helps move away from the culture of only savings.
Another revolution is being caused by stock market in India currently. We have begun financialization of our huge savings. Gold ETFs, REIT, etc. are helping provide better liquidity to the traditional investment assets like gold and real estate. Also, instruments like Mutual Funds’ SIPs are helping channelize the household savings.
Only about 5% of Indians are have invested through stock market so far. Imagine a fraction of INR 26099.21 billion of India’s household savings coming to the stock market.
Surely, there are crooks in Indian stock market also. The government, through regulators and policies, is on your side and are doing everything it can. The onus of protecting your wealth is on yourself. Remember PMC Bank?
But when my friend Seshu wants to grow its business beyond current levels, he acknowledges that only time will tell whether their current strategy of ploughing their own resources back and also their fear of dilution is right or not. I know that he is not right. I know that Seshu also, deep in his heart, knows that they may not be right.