Page 117 - Nuvama | IC Report 2023

INDIA: THE 5D ADVANTAGE

Historically, household savings in India gravitated towards physical assets (real estate, gold, etc) or
debt instruments (bank deposits, small savings schemes, etc). We find this affinity rooted in the
superficial deepening of capital markets as well as a conservative mindset of a low per-capita country.
That said, this trend has reversed in recent years. The role of capital markets in intermediating savings
is clearly expanding, especially in equity markets. It is as if there is a cult-like emergence in equities.
Systematic Investment Plans (SIPs), which are monthly allocations made towards equities, have been
seeing an unwavering ascent over the last five–seven years, and forming a conspicuous part of the
savings pie with broadening participation.

14000
Exhibit 2:
India’s monthly
equity SIP flows
12000 have seen a steep
ascent

10000
(Rs. in Crores) 8000

6000

4000

2000
Apr ‘16 Aug ‘17 Dec ‘18 Apr ‘20 Aug ‘21 Dec ‘22

India monthly equity SIP flows
Source: AMFI, Nuvama Research
The question is: will this trend sustain? And, what are the possible implications that might piggyback
this scenario? Naturally, we look to history for inspiration, and history rarely disappoints. We share the
learnings from the US of the 1980s and the 1990s.
India: Mirrors post-1970s’ US?

Similarities from the US of the 1970s can be found in the India of today: the most apparent being similar
per capita income levels and demography. This offers a good starting point. India and
1970s US have
Another hard-to-miss similarity is stagflation post-1970s. During this time, the Reagan administration similarities in
had unveiled significant reforms: capital markets were deregulated, tax rates were reduced and terms of per
capital allocation was left to private participants. In India too, post-stagflation in the early 2010s, capita GDP and
a large number of reforms were rolled out, and India’s capital markets now play a more active role Demography
in the economy.

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