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India’s domestic flow in equity to be $300 billion in 10 years: Morgan Stanley

Domestic households are expected to put in a whopping USD 300 billion (about Rs. 19 lakh crore) in equities over the next 10 years, a report by Morgan Stanley has said.

“With regulations and demographics now more favorable for investors, investor education having increased, and a less risk averse population, the qualitative environment favours equity investing,” the research note by the global brokerage major said.

The stage is set for a significant rise in domestic demand for Indian equities, it said.

The company estimates a domestic flow of USD 300 billion over the coming 10 years versus the USD 50 billion and USD 134 billion that households and FIIs invested over the previous 10 years.

Domestic households are grossly underexposed to equities in their total assets. They own, directly and through mutual funds and institutions about USD 400 billion dollars of stock.

On the contrary they have bank fixed deposits of USD 1.1 trillion dollars and significant investments in gold.

The report further noted that there has been substantial attention paid to investor education over the past few years and this education process has heightened investor awareness about the merits and risks of equity investing.

SEBI now mandates mutual funds to spend 0.02 percent of assets on investor education.

Based on the current outstanding equity asset base of Rs 3,580 billion, this is about Rs 700 million spent in investor education annually, Morgan Stanley said.

The report however said that a sharp correction in stock prices, adverse change in tax laws, persistent negative real rates and failure to achieve potential growth could impact household investments in equities.

On the contrary positive real rates, rising equity returns, better growth and base effect could act as catalysts for a shift in household behaviour, it added.

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