How handful of people ate the cream of Indian Economic Growth! Ajim Premji, A Case Study: And Why You Are Responsible For Your Own Financial Good and Bad In This Age:

How handful of people ate the cream of Indian Economic Growth! Ajim Premji, A Case Study: And Why You Are Responsible For Your Own Financial Good and Bad In This Age:

If you are reading this than you must be aware that stock market/capital market is the barometer of the economy and it is the place where you trade the growth of the economy. But how many out of the entire population eligible to invest has invested in this growth of the country? Have you ever wondered that there are only 3-4% population of the country that is invested into stock markets right now (including mutual funds) and why so? The ratio of entire country’s population invested into stock markets run somewhere between 20-50% in China, USA and other such economy. The lower equity participation is also one of the reasons why India, after 20 years of liberalization has not been able to come on the fast track of sustained growth rate like China and other Asian peers.

The point we are discussing here is however distinct.

What we want to throw light is here that how handful of promoters have ate the cream of privatization and benefited from the liberalization of the economy.

We will take only one example or case study here. The IT sector is one of the major beneficiary of the liberalization process. Wipro has been among the top 5 IT companies among Infosys, TCS, Patni, Satyam, Tech Mahindra and a couple others.

This top 5 companies were garnering and monopolized and say enjoyed 60% (in fact of the benefit of growth of IT sector. Thus, Wipro shared 12% of this. Now this will translate into 6% of the IT sector’s growth benefit going to Wipro alone out of the entire 100% growth of the IT sector due to liberalization. The more important part is still coming. Wipro promoter Ajim Premji held close to 90% in the company (as on December 2012 also the promoters hold about 80%). Thus, out of the 6% of the entire IT sector growth in India that occurred due to liberalization, Wipro alone earned 6% and out of the 6%, 90% i.e. 5.4% benefit solely went to Ajim Premji & Sons! (You can find such case in almost all sectors)

This is in our opinion, a big loot of the right of the average citizen who has also compromised and contributed to the liberalization of the economy and has a right in the growth share of each sector. Everyone has a share in the growth of the economy. Yes, the risk takers, those who ventures, the entrepreneurs, those who toiled and moiled have to benefit more. But, the assets of the economy and country is an asset of every citizen of the country. The airwaves spectrum that are bought by the telecom companies, the coal blocks, the dams that are built on the rivers, the public sector companies, the mineral reserves, the lands, the farms, even the policies are an asset of each and every citizen of the country. Thus, every liberalization policy, in this example, the IT sector’s growth was also the asset and entitlement of all Indians.

But so what? So far so good till here. Let us skip and ignore if we believe and say that there were corruption, and kinsman ship in giving out the benefits of the asset that we talked about like telecom spectrum, the latest example, and the mines and so on. We cannot do anything about it. It will remain part of the life. What could an average Indian have done about the telecom spectrum scam? What can you do about the coal block and the oil and gas block allocation? If someone has the capacity to bid for spectrum, they are most welcome, it’s free to bid for everyone. All are free to do any business and take benefit big time. The average investor/small investor/retail investor is not barred from bidding for a public sector undertaking which is on sale, no. But they can’t.

The point is that there is ton for elephant and gram for an ant. The retail investors can’t open a big IT company or can’t build a refinery like Mukesh Ambani. But they can participate in their right to do the same business and benefit by purchasing the shares of the same companies. The only thing is that they have to select right. It’s their responsibility. No one else’s. The moment I gave example of Ajim Premji and Wipro, I do not mean to despise anyone or Ajim Premji. The way capitalism, liberalism and free economy works is clear. You have to take care about your own self. You got it.

We are not criticizing Ajim Premji, in fact his entrepreneurial ability is praised. It was the responsibility of the government and capital market regulator to see that the fruits of economic growth is distributed as much equally as much possible among the citizens of the country. That is what the Constitution of India also contends.

This is only the story of one sector. You may find similar incident in other sector and industry also. The story applies to geographical spaces as well.

To undo this, the government has now specified a minimum public float of 25%. It has been extending the date of this public float requirement since last 2 years. This June 2013 is again last date to comply with the same. However, that said, as mentioned above, it is also your responsibility that you benefit by investing in sectors and the leading companies or growing companies. Or invest in whole market by buying index funds or others.

The conclusion for retail investor is that it cannot rely on slack and slow government follow-ups. The retail investor has to awaken and start investing in stock markets. He can start with an SIP in Index funds of top 100 companies or diversified fund or can hire a good professional advisor and start investing directly into stocks. The law economics says the long term rate of interest are always in declining mode. That said, the fixed deposits rates will always come down. Do you remember in last 15-20 years, the fixed deposit rates have come down from 15-20% to now less than 9%? And this well continue to decline. Capitalism is not going anywhere, retail investors must accept the change and make money work for them.

We will elaborate how Indian Government also wants to take off the burden of depositors from its shoulder and wants to push everyone to invest in equity markets by bringing in new pension scheme, the rajiv Gandhi equity scheme for attracting new investors, the liberalization of mutual fund and insurance industry and allowing full FDI in them and so on. Just imagine how many rupees are going to come in markets in coming days? Suppose, in 20 years of liberalization the Indian markets have growth

How the government/Indian economy’s rating and companies will benefit and you will lose?:

In the same breath, we also make you notice how government has increased the prices of fuels like oil, gas and wants to decrease its burden in terms of subsidy also. Who will benefit and who will lose? Of course, the companies who sell this things will benefit. The government will benefit by way of low deficit and thus rating of India will improve and consequently the foreign fund flow will improve. The losers will be those who will rely on their present income from job and business. They are going to be hurted by inflation in mid to long term and those who invest in equities in any way will cover themselves from inflation and also get extra return on their equity investments. Please read separate article on effects of inflation and the power of compounding (in fact the first objective for investing is to save ones money from decreasing in value from inflation and then get a return/interest on it if any)

I hope you got the entire point of this article. That is, you need to be invested in equities. There is no alternative to it if you want to prosper financially.