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India’s Capital Markets: Deutsche Bank releases paper
Another bank, another paper.
Deutsche Bank Research has released a 16 page report on India’s capital markets. It has a lot of numbers from a lot of places, and may not interest everyone. But it presents some interesting observations on India’s growth and development.
Credit growth has surged at 35% year on year in 2004-05, but financial intermediation by banks is amazingly low (bank credit forms 40% of GDP in India, compared with 140% in China and Western Europe).
An international borrowing spree by Indian corporates has seen corporate debt increase to USD 6.7bn in 2005, up from USD 2bn in 2001 (China’s has come down from about USD 2bn to less than USD 1bn in the corresponding period). This may be fuelled by:
fewer listing requirements, lower cost of funding and better liquidity in the secondary markets. The trend also stands in contrast to the sovereign’s absence in the international capital markets, reflecting the government’s conservative approach to external debt management as a result of the current account crisis in 1991/1992.
Healthy capital markets have grown substantially, with over 100% appreciation over the past three years. At 90% of GDP, the market’s size is “comparable to that of other emerging countries, although is still small relative to many developed markets.”
Indian households are the largest savers in the economy, accounting for 75% of all savings. They are also incredibly conservative, stashing 42% in deposits, and only 3.9% in shares. Only 7% of households invest in the capital markets.
By and large, Indian investors tend to be conservative in their investment decisions, with a general preference for safe returns and capital preservation. As for large domestic institutional investors such as pension funds and insurance companies, their investment style has largely been the result of regulation.
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4 comments for “India’s Capital Markets: Deutsche Bank releases paper”
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Dweep,
“Only 7% of households invest in the capital markets.”
“Healthy capital markets have grown substantially, with over 100% appreciation over the past three years.”
What does one infer from these contrasting results? That only the very rich are earning money from these booming stock markets?
Alex, strictly translated it only means those that invest in the capital markets are earning money from the stock markets. It does not naturally follow that those that invest are the rich, though they will probably make up the majority.
Dweep,
Okay. But isn’t it that the FII’s have been the main contributor of the appreciation?
Good question. I did not really know the answer, so did some Googling, and came up with this:
http://www.countercurrents.org/eco-kumara110706.htm
It would certainly appear FII inflows have been the major cause of the stock market appreciation.
Now, I’m presuming you did not just ask that question to get an answer? Rather, you’re taking a normative position that this is bad? Please do explain