Show Me the Money

Narendra Modi was sworn in as prime minister on May 26 2014 His five years as the prime minister of India are now coming to an end And given that a smallscale industry has sprung up in trying to analyse the economic success of India during the Modi years Instead of adding to that in this piece we will try and take a look at how money has moved during the Modi yearsThe Foreign MoneyLets start with foreign institutional investors FIIs who over the years have invested both in Indias stock market as well as debt market Take a look at Figure 1 which basically plots investments made by FIIs in stocks and debt over the yearsFigure 1Figure 1 makes for a very interesting reading The total FII investment in stocks in between April 2014 and March 6 2019 a large part of which are the Modi years stood at R147591 crore This sounds like quite a lot of money until we compare it with all the money that FIIs invested in Indian stocks between April 2009 and March 2014 when Manmohan Singh was prime minister The total investment during that period was R483822 croreThis basically tells us two things 1 The FIIs did not buy much into Modi being good for the stock markets story unleashed by the Indian stock brokerages from the second half of 2013 2 Also they ended up playing smart A bulk of their investments were made before 2014 when the Indian stocks were available at low prices in the aftermath of the financial crisis of 2008 This made immense sense The BSE Sensex Indias main stock market index has given a return of 268 between April 2009 and March 6 2019 A good portion of these returns came after April 2014 hence the FIIs were well placed to benefit from itWhat about the Indian investorsHow have they behaved when it comes to investing in stocks Lets look at the net investment in equity mutual funds over the years in Figure 2 This is a good indicator of whether the retail investors are buying stocks or not Equity mutual funds collect money from investors and then invest that money primarily in stocksFigure 2Figure 2 tells us the retail investors did not invest in stocks between 200910 and 20132014 During the period retail investors netsold R33104 crore worth of equity mutual funds Of course this was their response to the stock market collapse in the aftermath of the financial crisis which broke out in September 2008Come 2014 and retail investors bought Modi being good for the stock market story lock stock and barrel Also by then the BSE Sensex had rallied considerably from its 2008 lows Between April 2009 and March 2014 the Sensex had gone up by 126 This gave confidence to retail investors to invest in the stock market Between April 2014 and January 2019 the net investment in equity mutual funds stood at R439472 croreA bulk of this money R156753 crore came in 201718 This was also on account of interest rates falling in the aftermath of demonetisation which happened in November 2016 Hence people moved to stocks in search of better returnsGiven this the Indian retail investor came back to investing in stocks during the Modi years Nevertheless the FIIs made more money as always given that they had invested a bulk of their money before 2014 and have been in the game for a longer periodOther than the confidence of the foreign investors how confident were Indians working abroad about the Indian economy Post 201415 there was a dip in inward remittances Look at Figure 3 In 201617 inward remittances by Indians working abroad fell to 3526 billion which was just a little more than 34 billion in 201314 In the first six months of 201819 the inward remittances have been strong at 2497 billion Hence there has been a slight recoveryFigure 3Looking for safetyWhile more Indians have taken to the stock market over the last few years bank deposits continue to remain the most common form of savings Take a look at Figure 4 which basically plots the total amount of money held in bank deposits during the course of a year over the yearsFigure 4What does Figure 3 tell us Bank deposits spiked during 201617 primarily because demonetisation forced people to deposit R500 and R1000 notes with banks Otherwise deposits as a form of saving has been falling over the years In 201314 bank deposits worth R955 lakh crore were made This fell to around R668 lakh crore in 201718 the last year for which full years data is availableOne reason for this lies in the fact that some portions of the savings have made their way into the stock market since 2014 both in direct and indirect forms Another reason lies in the fact interest rates on the whole have come down since 2015 This has pushed people to look for other avenues of savingOne major avenue of investing has been the small savings schemes run by the post office These include the post office savings account the public provident fund senior citizens savings scheme national savings certificates etc All the money collected by these schemes is credited into the National Small Savings Fund NSSF Figure 5 plots the collections under the NSSF over the yearsFigure 5The gross and the net collections of the NSSF have gone up over the years The gross collection essentially is the total amount of money coming into these schemes What remains after the amount withdrawn on maturity by investors is the net collection The growth in collections of NSSF is on account of the fact that the rate of interest offered on the post office schemes is greater than the interest on offer on bank depositsBasically people have had to look for other avenues of investing after demonetisation ate into the interest they earned on their bank deposits While there is no separate data available for Mumbai given the citys fascination for stocks it is safe to say that more Mumbaikars have invested in stocks both directly and indirectly in the last few years than beforeAlso Indias fascination for real estate has come down over the years In 201112 the physical savings in land real estate etc amounted to 155 of gross national disposable income GNDI This has come down to 1021 of GNDI in 201718 This has been on account of real estate barely giving any returns since 201112 leading to a lower interest in the sectorHow does the future look As far as bank interest rates are concerned they are likely to remain at the current level or even go up slightly given that banks are almost lending out all the deposits they haveThe real estate sector will continue to remain messy primarily because prices continue to remain high across large parts of the country including Mumbai On the stock market front while the small and midcap stocks have taken a beating some of the large cap stocks which constitute the major indices like the Sensex and the Nifty continue to be expensiveWhile there is a great fear of a nonModi led government knocking out the stock market it is worth remembering that between April 2004 and March 2014 the BSE Sensex gave an absolute return of 300 This happened despite the stock market crashing before during and in the aftermath of the financial crisis of 2008 Manmohan Singh was the prime minister through much of this periodCatch up on all the latest Crime National International and Hatke news here Also download the new midday Android and iOS apps to get latest updates