Has India's savings & investment habit change after DeMo?

Has India's savings & investment habit change after DeMo?

On 8th November's eve, when the world was eagerly waiting for their predictions on US presidential elections to win, Indians got hardly hit by a sudden storm announcing an unscheduled plan of demonetization. The president addressed the citizens on 20:15 IST stating that all 500 and 1000 rupee notes were subject to be invalid post midnight! The impact of such a surgical and disruptive move was unimaginable. People jumped out of their couches and started counting on their hidden bundles of notes. Well, the major idea behind whole incident was to put up an effort in ceasing those bank notes, which assist in funding criminal activities and simultaneously ending up the accumulation and circulation of black money!

Well, it can't be perfectly defined that NaMo's DeMo, turned out to be successful or not, but it surely has brought a revolutionary change not only nationally, but globally too. Some have backed the move, while others were aghast! One of the biggest changes that it brought in the lives of Indians was that relating to their investment and saving habits. Let's checkout, how far our depositing habits got influenced by the DeMo effect!

A non-linear shift!

An insight of the short term effects described the move as really disrupting. Right on the next day, the stock of BSE SENSEX and NIFTY fell over 6%. In the later days, nation faced severe cash shortages with detrimental effects throughout the economy. Ultimately the country's GDP and industrial production got reduced. Coming to banks, they were short of the new notes which were subject to be exchanged for the old ones, this lead to huge crisis and whole burden was on the shoulders of those deprived of proper banking facilities available.

Earlier when Indians generally relied on playing safe bets through investing in assets like gold, DeMo has completely changed this pattern over time. Till the half ending of March 2016, the GDP definitely grew from Rs 0.23 lakh crore to that of Rs 1.36 lakh crore. Still, the household's savings as in a ratio of GDP have reduced from 22% to 19%. The market's performance between October 2016 & January 2017 shows that the foreign investors withdrawn around Rs 39,979 crore from their savings placed in Indian equities.

But keeping aside the short term effects, the story displayed in the long run totally took a different turn. Indian households clearly started to shift their savings from that in physical assets to the financial ones in the past 2 years. There have been a remarkable increase in mutual fund folios, financial markets, domestic retail inflows and spurt in the demat accounts which defines the transition towards financial assets.

The problem with Indian economy was that, households here have advanced around 95% of their overall assets in the physical ones like farm, non-farm land, residential buildings, transport vehicles, constructions, livestock, poultry and even in gold or other precious form of jewelry. However, only the rest 5% goes in financial assets like bank deposits, savings, mutual funds, life insurances, etc. this, in the case of developed economies is vice-versa. They prioritize their financial assets and put aside specific amount for retirement or lifetime savings that can help them in crucial stages.

But after DeMo, a gradual positive shift was witnessed in the savings patterns of Indians. Their total inflows in mutual funds across balanced, equity and equity ELSS from January 1, 2017 was estimated out to be Rs 1,00,325 crore till the September end. Around 50% of these inflows were parked in the debt to balanced funds and remaining was set aside into equity oriented schemes. The total accounts or folios in September 30th 2017, stood out to be 6.20 crore in which, the highest investment is that in the retail segment which stood as 5.05 crore. While comparing the industry's AUM (asset under management) there have been a significant improve from ₹10 lakh crore in May 2014 to ₹20.40 lakh crore as in September 30, 2017.

Striking increase in SIPs!

Post demonetization, SIPs are considered as a safe alternative to deposit money in. it is far appealing than holding cash or investing in some assets like real estate or gold for the risk-averse households in the nation. Reliable data depicted a monthly inflow of about Rs 4,269 crores in April, 2017, which was somewhere just close to Rs. 980 crores per month in the year 2012. In fact, the stats increased even faster and currently Indian mutual funds have about 1.66 crore SIP accounts through which they regularly invest in the mutual fund schemes. Today, the inflow in SIPs per month is around Rs.5000 that demonstrates how the power of saving has enhanced since demonetization.

Thus, DeMo, has somewhere largely changed the patterns in the Indian equity market. Now the money flows are more promising and opens the window towards a better present and future, for the domestic investors. 

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