At 14%, Indian households among the lowest invested in equities globally

The exposure of Indian households to equity assets in their financial balance sheet is among the lowest in the world at 14 per cent, says the September 2 report by Motilal Oswal Securities. At the other extreme is the US, where the exposure to equities stands at 45.5 per cent, followed by Spain, Canada and China. The report analysed the calendar year 2019 (CY19) data for all countries except China (CY16), Taiwan (CY18) and India (FY19).

“Notably, the risk appetite of American households is the highest compared to their counterparts in several other major nations. Canada and Spain are the only two other economies, where households have an exposure of more than a third of their total financial assets into equities,” wrote Nikhil Gupta and Yaswi Agarwal of Motilal Oswal Securities in the co-authored note.

Total financial assets of US households, according to the report, amounted to $94 trillion, or around 440 per cent of their gross domestic product (GDP) as at CY19-end. As much as 46 per cent ($43 trillion) of all financial assets (on an outstanding basis) were held in equity shares (corporate, non-corporate or mutual funds). Another 32 per cent were in the form of long-term/retirement assets, such as insurance and pension entitlements (I&PEs) and only about 14 per cent were held in the form of deposits, their findings suggest.

"The share of equities in household financial assets has risen almost continuously from its near all-time trough of 33 per cent in 2008 to 45.5 per cent in 2019, marking the highest rate since 1972," Gupta and Agarwal wrote.

Given this high exposure, dividends received from equity ownership has also affected personal disposable income (PDI). In fact, the share of these dividends had increased to an all-time high of over 7 per cent of PDI in CY19, beating the previous high of 6.8 per cent in CY08.

Having suffered one of the most testing periods due to the Covid-19-triggered lockdowns last quarter that brought economic activity in most countries to a near halt, global financial markets have continued to gain ground on the back of liquidity infusion by global central banks. On a year-to-date (YTD) basis, while Indian markets have lost nearly 6 per cent, key US indexes – the Nasdaq Composite, S&P 500 and the Dow Jones have gained 54 per cent to 74 per cent.

Going ahead, most analysts expect the global equity markets to remain supported by the liquidity injected by the central banks to stem the economic fallout of Covi-19 and prop-up growth. As an investment strategy, Christopher Wood, global head (equity strategy) at Jefferies, for instance, suggests equity investors maintain a barbell strategy of owning both growth and value stocks.

“Growth stocks have resumed the relative outperformance of late because of the renewed second wave concerns. But when the V-shaped recovery talk hits the market, and the pressure comes on Pivot, it will be the cyclical stocks that outperform again. That renewed move in cyclicals should also lead to renewed outperformance by Europe and Japan given the greater cyclical gearing of their benchmark indices,” he wrote in his recent note to investors, GREED & fear.