Investment in India's Stock Market: Understanding the Numbers and Barriers
India, the second most populous country with a population of 1.38 billion people, has 1.2 crore active investors. This represents only approximately 3 percent of the country's population. However, despite the low participation rate, the country is witnessing a rapid growth in its economy, according to the International Monetary Fund (IMF).
Understanding the Numbers
As of July 2022, over 550 million individual investor accounts were registered with the two major depositories in India: the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). This figure includes both active and inactive accounts. Despite this vast number, the majority of these accounts are likely inactive, leading to a smaller percentage of active investors.
Key Reasons Why Most Indians Avoid Investing in Stocks
Lack of Proper Financial Literacy
One of the primary reasons why Indians do not invest in the stock market is a lack of understanding about it. Many people perceive the stock market as complex and difficult to navigate, which is far from the truth. The challenge lies in the lack of accessible and understandable resources for beginners. It's crucial to address this gap by promoting financial literacy programs and educational resources.
Conservative Attitude towards Investments
The ongoing financial crisis, particularly during the 2020 coronavirus pandemic, has influenced the conservative approach of Indian investors. During Q1 of 2020, over 6 lakh crore new fixed deposit (FD) accounts were opened, as reported by The Times of India. Indians prefer the security of fixed deposits, which offer steady returns, over the volatility associated with the stock market.
Preference for Physical Assets
Another significant factor is the preference for physical assets like gold. India holds the largest amount of privately held gold globally, a trend deeply rooted in culture and tradition. Gold is perceived as a tangible asset that holds value and can be easily stored, making it a preferred choice over intangible assets like stocks. Special cultural events and customs also reinforce this preference.
Lack of Capital
A financial barrier to stock market investment is the lack of capital. For many Indians, the initial investment required to enter the stock market can seem prohibitive. Many may not have the disposable income to put into stocks, making other investments more attractive.
Skepticism and Past Experiences
Historically, the Indian stock market has had its share of ups and downs, which has created skepticism among many investors. Volatility and sudden market corrections can be daunting, especially for those who are new to the market. Negative experiences or hearing about them through word of mouth can discourage individuals from investing.
Conclusion
While the barriers to investment in India's stock market are significant, they are not insurmountable. By increasing financial literacy, providing more accessible investment options, and addressing cultural preferences, the number of active investors could rise. The benefits of investing in stocks, such as potential long-term growth and diversification, are worth considering and promoting.