If you had invested in the Sensex on January 1 this year, your money would have grown by nearly 50 per cent. But the vast majority of Indians have not only not done so — they haven’t invested in stocks at all.
Barely 6.2 per cent of India’s household savings — around $100 billion — are invested in equities, either directly or through mutual funds. Does that mean that those who haven’t invested in stocks have nothing to gain from the gold rush in the markets? Actually, they do.
Investors—Indian and foreign—are buying Indian stocks because of India’s red-hot economic growth. This means that companies are performing well. High stock prices also increases their ability to borrow money against the value of their shares to grow their businesses. This creates employment, and eventually raises wage levels. The result: more disposable income, and higher savings.