Retail Investors stay away from the Indian Stock Markets

I keep laughing at stories from financial planners and analysts in newspapers, advising retail investors to put money into equity markets for higher returns. Retail investors on the other hand, have been completely uninfluenced by such advice putting money mainly into real estate and gold. Financial savings are mostly in the form of bank deposits, with very few people putting money into stock markets or mutual funds. Retail investors have been much wiser than the so called experts considering the performance of the average stock in the past 5-6 years. Given the massive corruption and governance issues with most Indian stocks and now even stock exchanges, it is a no brainer to get out of Indian stock markets.

While companies in India have a reputation of indulging in all kinds of shenanigans and frauds, now even the exchanges have become a big risk. The NSEL scandal is growing bigger by the day and has completely eroded whatever little confidence that retail investors had in the markets. The NSEL was nothing but a Ponzi scheme with shameless conflict of interests. The almost $1 billion fraud has made commodities volumes fall precipitously, as investors rush out to protect their capital. The NSEL drama keep dragging on and on. The big borrowers are now being forced to pay up after the courts have arrested their CEOs. Before that nobody was willing to pay up. Given India’s pathetic contract enforcement, it is not a big surprise that borrowers refused to pay up money. It was only after the police threw a couple of them in jail and attached the properties of some of the executives, that some decided to pay up. Note most of the borrowers had used the Ponzi scheme to invest in India’s bubblacious real estate markets. The nephew of the chairman of NSEL was one of the biggest borrowers. Also one of the biggest brokers in the exchange was owned by the exchange promoter. Given the frauds taking place, Indian investors trust gold and real estate as the only good places to invest. Even if they don’t give great returns, the capital is at least safe from the scamsters and fraudsters. Even the fixed deposits are not bad at 8-10% interest rate. They may not give great real returns but at least there is little risk for -100% return.

One more example of the rampant insider trading is that the Financial Technologies stock rose by 20%, one day before it announced the sale of a subsidiary. As usual expect nothing to happen to the happy inside traders who made an easy 20*365% returns. The markets in India are badly rigged and now the stock brokers are paying for their sins. Many of India’s top brokers and institutional investors are hand in glove with unscrupulous promoters. Fooling someone cannot happen ad infinitum as the retail investors have left the market. Now only the institutions do the trading and buying, leaving nothing for the brokers to feed on. All the top Indian brokers heavily advertised and sold the structured products sold by the Ponzi NSEL. Either they were all stupid in not knowing that the high returns were a result of a Ponzi or they were all complicit. Either way stay away from the Indian markets.