Five business news channels, so many newspapers, magazines and websites would not be able motivate traditional Indian investor to invest in equity and other variable return products unless the investment climate in the country is not changed significantly

He is not worried about his investments beating inflation. He abhors equity and believes it to be a gamble. Mutual funds are a strict no-no for him. He believes that investments in physical assets are as important as financial assets. He chases bank deposits and believes that insurance in an investment and not just a risk covering instruments. Media’s attempt to change his mind set towards investments has hardly worked. He continues to be the same over generations. There are no prizes for guessing it right. Welcome to the world of the traditional Indian investor, the investor who has existed for ages and has been successful as well. He has contributed significantly to the economic growth by generating one of the highest savings in the world. The recent events in the financial markets have brought focus back to this kind of investor. The turmoil in the market has shifted focus back to the strategy of this investor.
 

Before moving ahead let us look at traditional Indian investor and his investments. Investors generally make investments in two kinds of assets- financial assets and physical assets. Financial assets are bank deposits, insurance and equity while physical assets are gold, real estate and some white goods used on a day-to-day basis. As per the data released by the Reserve Bank of India (RBI), investors in the country invested in financial assets as follows over years:
 

From this, it can be safely concluded that the majority of Indian investors are extremely conventional in approach and have no out of the box thinking. The investor has stuck to the same investments over a period of time. It is very obvious that bank deposits and insurance have been the most preferred investment option for the traditional investors. Shares and debentures are hardly preferred by the investors. The highest savings in shares has been around 7% which has fallen substantially now. The RBI data related to projection of savings  during 12^th five year plan gives a bigger picture of how savings are going to be in financial and physical assets over a period of five years ( Refer: table below). It is clearly evident that bank deposits will continue to be as high as 50% of total savings. The share of insurance in total savings is also going to remain strong while that of shares and debentures will once again be consistently low.
 

What is the DNA of traditional Indian Investor?
 

Looking at the data and the nature of the financial savings made in India, the obvious question that comes to mind is why do Indian investors invest in traditional financial assets or to be more precise, ‘sarkari’ kind of assets? Why is bank deposit more important for this investor than investments in shares? Is the investor worried about volatility and is completely risk averse? The answers are both yes and no. Majority of Indian investors struggle to save because of low-income levels and hence do not want to risk their hard earned money, so they invest in traditional investment assets. It is not about financial education. In India five business news channels, so many newspapers and magazines and websites keep on bombarding investors with need for investment in equities for consistent wealth creation but this has somehow not worked. Therefore, this category of investors is fairly aware about investment options. The traditional Indian investor in keen on preserving his wealth as the ability to take risk is limited.
 

There is another group of investors, which is affluent and can take risk, but has learnt over a period of time that investment in variable investment products can be rewarding but also killing many times. This investor has been investing in the equity market but gradually, he seems to be disillusioned. The bitter experience over a period has made this investor realize that it is better to keep away from equity. The proof of the pudding is in the eating and you cannot convince an investor to invest for long term, if the returns are not good.
 

The traditional Indian investor is a very intelligent breed and knows his interest very well. The famous saying that ‘a bird in hand is worth two in the bush’ drives him. Is he doing harm to himself by not investing in equity and other variable return products? The answer is no, as long as he is meeting his financial goals. In the current market turmoil, he is sitting pretty and is not worried about what next.
 

Is the traditional Indian investor good for Indian economy? 
 

While some may argue that the traditional Indian investor is doing harm to himself, by not investing in risky, but potentially rewarding products, the fact remains that he is a boon to the Indian economy. He is a cheap source of capital and helps the economy channelize necessary savings for future investments. The deposits made by him help utilize the resources for investments in the economy. Debt is a comparatively cheaper source of capital compared to equity, and investors in India have contributed to this in a significant way, by making investments in debt products. The physical savings made by these investors sometimes become unproductive and needs to get channelized for more productive usage.
 

Is the investment profile going to undergo changes in India in the days to come? It is difficult to answer this but the fact remains that investors cannot be motivated to invest in equity and other variable return products as long as the investment climate is not changed significantly. Volatility is a part of equity investment but manipulation needs to be controlled. Better corporate governance and confidence building measures can bring more investors into the fold. But it looks difficult in the near term. The ‘Traditional Indian investor’ is here to stay.