Opinion | Retail investors can add to India’s growth story2 min read . Updated: 05 Jul 2019, 10:47 PM IST
India’s growth will be through building new companies and industries that need capital
The future of India lies in the lay investor’s hands, at least partially. India must grow, and it needs capital to grow. Till recently, most of the capital was provided by government spending, so we could build atomic reactors, metros and even behemoths like Air India. And retail investors were encouraged to provide the government with more capital, through post office deposit schemes and Public Provident Fund.
But times have changed. As the government reduces dependence on retail savings (now less than 2% of government borrowing), the retail investor has more options. Now, the small investor can buy stocks, bonds, currencies, commodities, private equity, and more. Much of this has already provided capital to companies that have gone on to become giants and job creators, from the likes of Reliance Industries to even Unilever’s Indian subsidiary.
There’s more to come. The government issued “gold bonds" to reduce our imports of physical gold. And already, investors have bought over ₹7,000 crore ($1 billion) worth of these bonds. The Reserve Bank of India forces banks to buy government bonds, partly because they are afraid there will be no other takers. A few months ago, they allowed small investors to also buy these bonds. If retail investors bite, then we can reduce the need for banks to do so, and banks can then lend money to the economy instead.
RBI has started a new foreign exchange portal, where you can buy forex directly. Banks have traditionally been the source of forex. They’ve charged exorbitant fees, but now you can avoid these fees. This also opens the door for retail participants to trade foreign exchange, reducing transaction costs for everyone.
You can now build a portfolio of real estate without getting your hands dirty. REITs (real estate investment trusts) are a new way to get “rent" and have someone else take care of maintenance and service. And to do it without putting extraordinary amounts of money, since you only own a fraction of the property.
Large companies today—from Amazon to Flipkart—have been funded mostly by foreign money. Partly from pension funds in the western world, which give a fraction of their corpus to each investment, hoping that stellar gains will give them good all-round returns. India’s pension institutions have traditionally balked at such ideas. But this is changing too—the National Pension System and the Employees’ Provident Fund Organization, managers of India’s largest pension products, have started to move more money into equities and risky assets.
At the same time, the rule of law plays a huge role in curbing fraud. The fear of fraud, and of fraudsters getting away with it has prevented retail investors from being more enthusiastic about markets. That’s changing now, with an insolvency law, a benami property Act, better enforcement, and court actions getting streamlined. If we nail a few big fraudsters and provide relief to investors who lost money to cunning and guile, we will go a long way in helping build confidence in future investments.
India’s growth to a $5 trillion economy will be through building new companies and industries. Technological advances such as drone-based logistics, electric vehicles, entertainment on demand and 3D printing have the ability to dramatically change India’s future, and will need capital to grow. Should that capital only come from foreign pension funds? Or, as these companies go public in India and look for equity and debt, can the retail investor play a part? I definitely think so.
Deepak Shenoy is CEO at Capitalmind Wealth, a Sebi-registered portfolio manager