Indian Capital Markets

The Indian capital markets recently made a new all-time high but there is no sense of jubilation or high fives that generally takes place. The stock broking sector is going through an acute crisis with thousands of job losses and company closure. The economy is mired in a deep slump with stagflation taking a toll on the population. Even as the consumer inflation has climbed over 10%, the industrial growth has gone to 0%. Amongst these figures, one would expect the stock market to touch new lows instead of new highs. But the crazy money printing caused by the US Federal Reserve has resulted in this distorted state of the Indian market.

Read more about the India Stock Market here.

FIIs have poured in a record $16 billion of money into the Indian stock market this year, despite the huge economic and political problems being faced by the country. The massive corruption and corporate mis-governance has made the retail investors treat the stock market like a leper. The stock market rally has been led by the IT, pharma and consumer goods stocks which are trading at crazily high valuations. These are favored by the FIIs as a result of which they are pretty much in the bubble territory. In comparison the mid cap and small cap indices remain almost 30-50% below their all-time highs, as FIIs do not touch stocks with small capitalization and low liquidity. The Indian retail investors have not come back to the market since 2008, after being repeatedly signed by scandals and scams in which no one gets punished. Much better to invest your money in real estate, gold or even fixed deposits. Those who have done so, have made a smart choice as stock market returns have been negative over the last 5 years.

Statistics show that retail investors have largely been sidelined during the stock market rally over the past decade. Bonds and fixed deposits have instead been their ‘go-to’ investments. As per Economic Times, the daily cash market average volume of retail investors is down to Rs 46.15 bn so far in 2013, the lowest since 2003 and 66% down from peak of Rs 137.09 bn in 2009. Between 2003 and now, the share of retail investors in the total has shrunk to 34% from 65%. Scams, distrust in the regulator and company managements and the ghost of 2008 financial crisis are still fresh on the minds of small investors.

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Despite making new highs, there are almost no IPOs which means that the stock market is failing to perform its main function of providing equity funding to new companies. The NSEL scandal has massively eroded the confidence of investors in India’s regulatory systems and regulators. Thousands of investors have lost money by investing in commodity futures on a listed exchange after the exchange and counterparties refused to honour the contracts. The Indian government was sleeping on the issue until a lot of big money investor put pressure. It is only now that some money has started to be returned after big borrowers were thrown in jail.

Investing in the Indian stock markets remains extremely hazardous as you can never trust the financial statements of the companies and promoters can take you for a ride (Satyam founder is free and having a good time after defrauding investors of hundreds of millions).