The Hindu Business Line : Households turn conservative — Equity investments stagnate in 2003-04

OFFICIAL Government statistics belie popular perceptions that retail investors swarmed back to the stock markets in the year 2003-04. Such perceptions were reinforced by the boom in the number of dematerialised (demat) accounts opened and the response to the disinvestment offers made by the Government.

At least, this is the impression that statistics on household savings in financial assets, collated by the Central Statistical Organisation, leaves one with. The description of households includes consuming households and mixed income households such as partnership firms and proprietary firms.

The investments of such households in shares and debentures rose by a paltry 8.6 per cent to Rs 5,847 crore in 2003-04.

This was much lower than the Rs 18,199 crore that households put into shares and debentures in 1999-2000.

The boom in borrowing by households too appears to have tapered off in 2003-04.

Borrowing by households, which rose by more than 70 per cent in 2001-02 and 2002-03, tapered off to a more modest 24 per cent in 2003-04.

Again, the growth in retail advances reported by public sector banks and the aggressive marketing activity in the housing finance segment created the impression of a continuing boom in household borrowing in 2003-04.

The statistics also indicate that household participation in the mutual fund industry to be extremely low.

Mutual funds collectively had mobilised Rs 46,809 crore in 2003-04. It appears that households had contributed a mere Rs 4,594 crore of this sum.

The implication is that the rest had come from corporate sources and Indian companies and that they are more effectively utilising mutual funds as tax-efficient vehicles.

In contrast, households had deposited Rs 1,69,000 crore in bank deposits. This works out to over 75 per cent of the increase in aggregate deposits of the banking system in 2003-04.

The data suggests that, in 2003-04, the household investor had turned extremely conservative.

In 2003-04, the household holding of currency rose nearly 50 per cent, investments in bank deposits rose 38 per cent, while investments in small savings rose 19 per cent.

In contrast, they virtually stayed away from non-banking finance companies, relied less on co-operative banks and societies and withdrew from the units of Unit Trust of India.

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