We need to understand the economics behind this as we all know that 1 per cent wealthy people in our country have 73 per cent of the total countries wealth. So, this means due to lockdown their income has also been impacted due to low business transaction but at the same time these conglomerates also have huge income from their investment in properties.
Their property income includes direct rental income, bank FD & bond interest income, dividend income from shares & mutual funds. So, they are getting one portion of their income from their property whether their business is doing good or not.
They are saving big time on spends like partying at expensive restaurants & hotels, not going for foreign holidays & almost zero spends on business class travel, reduction in all these spends leads to huge savings for them. So, with all these savings and huge property income, they have additional in hand funds.
Now, a big question where to invest this extra income/savings? Probable answer form a common man’s point of view is Bank FD but on bank FD one will get the return of only between 4.5 per cent to 5.5 per cent. After tax investor will get only 3 per cent to 3.5 per cent on bank FD’s which is even lesser than the rate of inflation.
So, is bank FD a good investment option? No, then where to invest this extra saving. The answer is the equity market through direct investment in stocks or investing in a mutual fund.
In the equity market, one can invest through daily trading in which he/she cannot take delivery of stock, books profit or loss the very same day. Another way of investing in equity is long term investment through mutual funds and delivery of equity stock.
Mainly the percentage of delivery and investment by mutual funds in any stock exchange represents the confidence of investors and economic condition of the company as well as the country.
After analysing the delivery trends of NSE we come to know that during FY 18-19 delivery rate was 23 per cent, which has gone down by 3 per cent to 20 per cent in last FY 19-20 even during the March’20 when market was under tremendous pressure and touched the bottom delivery was at 20.5 per cent in NSE.
So, where is the issue? It comes in the picture during June 20 where the stock market has recovered by 39 per cent from the level of March 20 but the stock delivery percentage has drastically gone down to only 15.1 per cent which is the lowest level of stock deliveries after 2003 at NSE which means investors are not investing rather they are only trading to make short-term profits.
In June 20 turnover of NSE has increased by 37 per cent in comparison with May 20 but at the same time, there is 95 per cent low investment in equity mutual funds in June 20 in comparison with May 20.
Such a low investment level in equity mutual fund indicates that investors do not have long term confidence, they are taking out their investment from mutual fund and investing it in daily trading to make a short-term profit. One needs to understand this in a way, that stock market turnover has increased by 51.6 per cent on June 20 in comparison with Jan 20 but at the same time equity mutual fund turnover has increased only by 8.7 per cent during the same period.
All these indicators indicating that no one has long-term confidence in the Indian economy. All the investors are making a short-term profit which is not a good sign for any economy.