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What are Indians Doing With Their Savings ?

September 11, 2010

Data from a large FII suggests that Households have essentially shifted out of low yielding bank deposits, fixed income funds in 2010, and put their cash into a variety of higher yielding assets. Indians have been buying small savings schemes (up 200%), property
(+144%), gold (+90%), equities (up seven fold albeit from a low base), and new insurance schemes (+37%) in the first half of 2010 compared to the same period in 2009.

Risk appetite seems quite good if the increase in flows to property and equities is any indication. Bank deposits became particularly unattractive in 1H2010 due to the fall in nominal rates and rise in inflation.

The recent rise in bank deposit rates may cause some shift back into bank deposits may be at the expense of small savings. From a longer-term perspective as the savings’ rate rises on the back of improving demographics, household demand for risk assets could surprise on the upside.

Here is the List of Assets where Indians have invested between June-2009 and June-2010
Gold – Up 90% [Volume]
Real Estate – Residential Top 7 cities – Up by 144% [Voulme]
Mortgage Loans (as a proxy for residential house purchases) –
PPF, Small Savings, Govt Deposits – Up by 200% [Volume]
New Business Insurance Premium – 37% [Volume]
Bank Fixed Deposits – (-27%)
Change in Shareholding for 1250 NSE Listings (public+mutual funds+institutions) % 1.2%

The recent rise in bank deposit rates may cause some shift back into bank deposits may be at the xpense of small savings. From a longer-term perspective as the savings’ rate rises on the back of improving demographics, household demand for risk assets could surprise on the upside.

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