Exposure to equity markets, as a part of the total financial balance sheet of Indian households, stood at just 14% at the end of financial year 2019, lowest among major economies.
Exposure to equity markets, as a part of the total financial balance sheet of Indian households, stood at just 14% at the end of financial year 2019, lowest among major economies. Brokerage and research firm Motilal Oswal, in a recent report, noted that while exposure to equity markets as a part of household financial assets is lowest in India, American households had the highest exposure at 45%. The only other countries even close to the United States of America were Spain and Canada. With the high exposure, dividend income now contributes 7% to the personal income in the United States.
“American households are unique with regards to their exposure to the equity markets. Total financial assets of US households amounted to $94 trn (or ~440% of GDP) at end-CY19,” the report said. Along with having 45% of their financial assets invested in equity markets, American households invest close to 32% of their assets in long-term or retirement assets, similar to insurance and pension entitlements. Only 14% of their household financial assets were held in the form of deposits and 7% were invested in debt securities.
The report showed that the exposure to equity markets in the United States has been inching higher with each year since 2008. “The share of equities in household financial assets has risen almost continuously from its near all-time trough of 33% in 2008 to 45.5% in 2019, marking the highest rate since 1972,” the report said. Talking about the US Fed’s new monetary policy, the report added, “it seems pretty clear that the US authorities – fiscal as well as monetary – are now committed to boosting the household sector, and have conclusively left behind inflationary worries.” Although Motilal Oswal added that higher inflation in the US is unlikely in the imminent future, it did note that an unexpected resurgence in inflation could alter the reality.
On the other hand in India the household exposure to equity markets is similar to that seen in countries like Japan, Singapore, and the United Kingdom. The S&P BSE Sensex is down over 6% since the beginning of this year while stock markets in the United States are trading with gains year-to-date.