The economic uncertainty and the state of individual finances has impacted investments. Several retail investors say they are in no position to consider fresh investments at this time.
At the end of the 78th day of the nationwide Covid-19 lockdown, the feeling of uncertain economic and financial future has gripped majority of the citizens. This was revealed in a survey carried out by IndiaLends, a digital lending platform earlier this month.
The nationwide survey of nearly 5,000 respondents threw up no surprises: 94 per cent said they would have to be extra careful about how they spend their money in the next few months; 84 per cent said they were cutting back on spending; and 90 per cent expressed concern about their savings and financial future.
The economic uncertainty and the state of individual finances has also impacted investment with 76 per cent of the respondents (retail investors) saying they are in no position to consider fresh investments at this time.
Vinod Nair, Head of Research, Geojit Financial Services said, “The Indian retail investor has been becoming the strong backbone against the hot money poured by the foreign Portfolio Investors (FPIs) in the Indian capital market. The retail money invested in the Systematic Investment Plan (SIP) of the Mutual Funds (MFs) stood strong against the frequent inflows and outflows of FPI money.”
So far, he said, “We haven’t seen a major impact on SIP inflows, but with the people losing jobs, facing severe salary cuts and their changing behaviour with respect to spending, the investment in financial savings product may take a hit and result in increasing the market volatility. Currently, the rally we saw in the domestic market is completely driven by the liquidity provided by the FPIs.”
The average SIP book of Indian MFs is around Rs 8,500 crore per month. This is the amount Indian retail investors collectively invest in Indian Equity market through MF route. This works out to around Rs 1 lakh crore (roughly $13-14 billion) on an annual basis. Depending on the sentiment and other factors, FPIs too invest similar amount in Indian markets annually.
The survey has also revealed that the pandemic has severely affected the financial health of salaried and professional individuals with 82 per cent of respondents saying they are struggling to make the ends meet.
Significantly, the survey also revealed that the respondents would not be averse to taking a loan to tide over the present crisis — nearly 72 per cent said they would opt for a personal loan in the immediate future to meet high-priority expenses such as debt repayment, essentials and medical, education fees, and home repairs and renovation.
Gaurav Chopra, Founder and CEO, IndiaLends, said, “The pandemic has changed the way we all function, affecting our physical, mental, emotional and financial wellbeing. Salaried individuals and professionals, in particular, are coping with the potential burden of job losses and pay-cuts. The impact on their income and savings has seen a growth in demand for retail loans”.
On the other hand, as far as savings and investment into financial savings products are concerned, Chopra said, investing into stock market is a sentiment-driven thing. Currently, the market has recovered as there is a tremendous liquidity chasing a very few stocks. However, the broader market is quiet and calm. With the job-losses and pay cuts becoming widespread, the future is becoming uncertain and the feeling in creeping in that revival will take a long time. “Till that time people will have to live with uncertainty and chaos,” he added.
As evident from the table above, 40 per cent of respondents said their focus on expenses for essential items would increase, while over 70 per cent said they would spend less on non-essentials including entertainment, luxury and lifestyle in the post-COVID period.