‘Saver turns investor in a rebalance,’ says Uday Kotak, as Indian households embrace equities, mutual funds

Indian households are increasingly turning away from traditional saving methods towards more dynamic investment avenues, according to a recent analysis by Kotak Institutional Equities, supported by Bloomberg and company data. This shift is highlighted in the changing composition of household financial assets from 2014 to 2024, marking a move from savings to investments.

Uday Kotak, Chairperson of Kotak Securities, commented on the trend, emphasizing the need for a broader perspective on managing finances. "Saver turns investor in a rebalance of household financial assets. Bank deposits move from 53% to 42% between 2020 and 2024. Future is a holistic approach to financial services. Time for mindset change," Kotak stated.

As per the data, there has been a noticeable decrease in the proportion of bank deposits, comprising Current Accounts (CA), Savings Accounts (SA), and Fixed Deposits (FD), from a dominant 53% in 2020 down to 42% in 2024. This trend underscores a growing preference for equities and mutual funds, both of which saw an increase from 10% and 9% in 2020 to 12% each by 2024.

Further diversification is evident in the doubling of investments in Portfolio Management Services or Alternative Investment Funds (PMS/AIF), rising from 1% in 2020 to 2% in 2024. Meanwhile, insurance and pension products have maintained a stable share, with slight growth in the period.

Indian market scenario

Recently, Kotak Institutional Equities analysis revealed a few critical factors have been underpinning these elevated valuations. The report highlights an enthusiastic sentiment among non-institutional investors, who tend to be less sensitive to price, a robust macroeconomic environment, and a positive outlook for future earnings as key contributors to the current market conditions.

Against this backdrop, Kotak Institutional Equities has observed that the Indian market presents limited investment value at present, with stocks and sectors generally appearing overvalued. The brokerage has segmented the market into three categories based on their valuation: sectors that are fairly valued, those that are fully valued, and those that are considered to be in frothy territory.