Figure it, 1 out of every 4 Gujaratis invests in equity

Gujaratis are known for their love for bull-bear line or stock market. Though there is an inherent risk in stock investment, Gujaratis do not shy away from the capital market. A working paper by a faculty of IIMA says one out of every four Gujaratis invests in stocks.

This is about seven times higher than rest of the country’s average!

The paper on ‘Equity Markets with Controlling Shareholders’  by Sidharth Sinha shows that Gujarat tops the list of states
in terms of households directly investing  in stocks.

Quoting from the SEBI handbook- 2009, the paper says 24.1% Gujarati households invest directly in equity. The percentage in Gujarat is six times higher than the all-India figure of 3.7% households investing in equity.

Gujarat comfortably outshines other Indian states and union territories. In fact, what is remarkable is that the equity participation by Gujarati households is comparable with that of US and Canada, where investor participation rates in the domestic stock markets are 26% and 25% respectively.

Participation of Gujarati households in equity investment is better than countries like France (15), Hong Kong (14%), Taiwan (13%) and Germany (9%).

The report points out that proportion of Gujarati households which invest in bonds and mutual funds is also comfortably higher than most of other states. According to the paper, 26.2% Gujarati households invest in bonds, while 17.4% invest in mutual funds.

With 34.9%, Gujarat heads the list of Indian states in total investors, followed by Chandigarh with 24.2%, Andhra Pradesh with 24%, Pondicherry with 16.2%, Haryana with 13.6% and Goa with 9.8%.

“In India, savings of the household sector are estimated separately under financial assets and physical assets. The household sector is treated as residual sector because unlike corporate and government sectors, household sector does not have accounts for all its constituents such as pure households, HUF, self-employed persons, trusts, proprietorships, etc,” says the paper.

The paper also says that almost 50% of the household savings take the form of physical assets. Over 50% of financial savings claims on government and is in bank deposits. Life insurance funds account for 15-20 %, it says.

Further the paper points out that there are a few basic facts about determinants of household participation in the stock market. “Participation is strongly increasing in wealth. This can arise if participation involves fixed costs. Wealthier households who have more to invest will find the fixed cost less of a deterrent.     

Household education is another determinant. Education reduces the fixed costs of participating, by making it easier for potential investors to understand the risk-reward trade-offs in the equity markets, and to deal with the mechanics of setting up an account, executing trades, etc," says the paper.

Summing up, the report suggests that household participation in equity markets is influenced by a variety of factors. The effect of factors such as wealth, education and investor protection are relatively straightforward. The experience of Europe indicates that privatisation can play an important role in stock market participation. The role of mutual funds is also important in enabling indirect participation.