4.8% of $10.7 trillion Indian household assets are in equities: Jefferies

Equities as a percentage of households net worth has risen to an all-time-high as of March 2022

The equity cult in India has been growing over the years, with the investment of Indian households in this asset class hitting an all-time high in 2022. According to a recent Jefferies report, 4.8 per cent of Indian household assets (as of March 2022) are in equities – up from 4.3 per cent in March 2021, and up nearly 57 per cent compared to 2.7 per cent allocation to this asset class in 2020. It pegs the total value of Indian household assets at $10.7 trillion in March 2022.

"Our proprietary analysis of Indian household asset holdings (based on savings data and MTM calculations) over the last 15+ years suggests that equities as a percentage of households (HH) net worth has risen to an all-time-high, though it is still below 5 per cent. Financial savings are around 36 per cent of the $11 trillion balance-sheet," wrote Mahesh Nandurkar, managing director at Jefferies in a co-authored report with Abhinav Sinha.

The preferred mode of investments within financials, according to the Jefferies note, remains bank deposits (3x equities). "Physical assets viz. property (49 per cent) and gold (15 per cent) are still dominant; though physical assets have lost about 8 percentage point (ppt) share to financial savings since the trend began in 2014," Nandurkar and Sinha wrote.

Over the last 5 years, equity MFs have seen inflows of nearly $80 billion, Jefferies notes, and this trend appears consistent and hence sustainable. “Retail investors also invest in equities via channels including direct stock purchase and through insurance (primarily ULIPs). Pension funds (around $6 billion a year, EPFO & NPS) are over and above," the Jefferies report said.

And most investors, on their part, are not in a hurry to exit after they have bought stocks. 60 per cent of equity investors stay put for over a year, Jefferies said, displaying increasing investor resilience. However, the average ticket size for retail accounts has dipped 13 per cent in the last five years – from Rs 86,000 in 2017 to Rs 75,000 in 2021. The fall in average ticket size of high net-worth individuals (HNIs), too, has shrunk from Rs 1778,000 in 2017 to Rs 897,000 in 2021.

"Over the trailing 12 months, FPIs have net sold $28 billion in the secondary markets. This represents an around 5 per cent selling of their March 2021 holdings. Our analysis of past data shows that on a trailing 12 month basis, the current quantum of outflows is 3x larger than the highest outflow (trailing 12 months basis) seen in the last 10 years," Jeffries said.

Valuation woes

Despite the sell-off since their peak levels, the research and brokerage house believes the markets are still expensive and do not provide a good entry point at the current levels. Moreover, the rate hike cycle and sharp inflationary spike in commodities suggests the earnings upgrade cycle has likely ended for now. The domestic flows support could then help the Nifty move sideways, Jefferies said, warranting a time correction rather than deep cuts.

"Nifty has recovered 8.7 per cent from its recent lows and has rebounded close to our 17,500 December 2022 target. On valuation parameters, the market still doesn't offer attractive entry points. One-year forward PE of 19.5x is 17 per cent above the 10-year average. On a yield gap basis the market trades 53 basis points (bps) above the historical average," the report said.