Business | Markets
India's novice investors learn the hard way
More than half of those accounts are held by individual investors, and most largely enjoyed only success since making their first foray into the market.
- AP
- Published: 00:04 January 25, 2008
- Image Credit: AP
- Millions of first-time investors in India are getting a taste of one of the downsides of capitalism: markets also drop.
New Delhi: Maybe Dipanker Gupta should have listened to his wife.
"She kept bothering me. 'Get out, you have made the money you need,' was all she would say to me," said the 46-year-old accountant, who made his first foray into the stock market about a year ago, pouring in his life savings to catch what may have been the tail end of India's bull run.
"I didn't listen," he said, shaking his head and throwing up his hands.
Gupta is not alone. Millions of other first-time investors like him are getting a taste of one of the down sides of capitalism: markets also drop.
Last year, the Indian market's benchmark stock index, the Sensex, soared 47 per cent, in the process drawing new investors to the world of stocks and bonds - many with little or no experience in financial markets. But since the start of the year, the index has plunged.
Stunning loss
On Tuesday, the market sank so fast when it opened that the Bombay Stock Exchange automatically shut down for an hour. By the end of trading, the index had dropped a stunning 12 per cent in just two days.
There are only an estimated 5.8 million individual investors in India, a country of 1.1 billion, so there's little fear that the country's booming economy - forecast to grow more than eight per cent this year - will suffer if they scale back their spending.
But their losses are a psychological blow to the aspirations of India's new middle class, analysts say.
"People thought you could only make money. Even those people who were not in the market were talking about getting in the market," said Dhirendra Kumar of Value Research in New Delhi. "Most of them did not understand how the market works - that you can lose money instead of making money."
India's markets have climbed dramatically in the past four years, a rise that coincided with the equally dramatic expansion of India's middle class as the country's once-socialist economy took off. Millions of people found themselves flush with cash and eager to get into the market.
While exact figures are not available, the number of special deposit accounts Indians need to buy shares, which economists say is a reliable measure of how many people are investing, has more than doubled in five years.
According to the largest deposit company, National Securities Depository, its accounts have jumped from about 3.8 million in April 2003 to 8.8 million at the start of this year.
More than half of those accounts are held by individual investors, and most largely enjoyed only success since making their first foray into the market.
The Sensex climbed from about 2,000 points in April 2003 to more than 20,000 at the start of this year before it started falling.
While in the past there were bumps along the way - corrections that tracked the ups-and-downs in bigger markets in Asia and the West - "I always recovered", said Gupta.
Now he is not sure. While the Sensex rebounded some Wednesday and most of the shares he owns are still up from when he bought them, the index is down about 15 per cent from where it was 11 days ago and his gains are far lower than what they were. Yesterday the index closed down 2.1 per cent.
"Maybe now I should sell what I can," he said. His investment of about Indian Rs200,000 ($5,100) - his entire life-savings - is still intact.
But the new kitchen his wife wanted? "I don't have the money." The new car? "No, not this year."
Still, the prospect of big returns is hard to ignore - even for those who were indeed trapped by their losses at the start of the week.
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