Dnivash’s Weblog

Its time to turn around the stock market and earn a piece of money from share market.Read this story of a guy in BHOPAL, India —– Twenty-six-year-old science graduate Kranti Pawar is the son of a farmer and makes a living by hiring out a machine that digs irrigation channels.  Business is booming, he says, and so are his material aspirations. He wants  an air-conditioned car and a flat-screen plasma TV soon. But his bank account is not up to the task.

So in January, he invested the equivalent of about $1,000 in mutual funds for the first time, joining a new trend in an Indian middle class that has traditionally put its money in safe but slowly expanding bank accounts. Better, many people are saying now, to go for mutual funds, which have produced returns as high as 35 percent over the past two years.

But within a month of his investment, the long-climbing Indian stock market started going south, reflecting slumps around the world.

“My father said I should be content with what I get” from savings accounts, said Pawar, recalling his parent’s dictate against mutual funds. But he was young and willing to take risks to get rich. So far, it hasn’t paid off. Since January, the Indian stock market has fallen by about 23 percent, and equity mutual funds are down about 28 percent.

“As the proverb goes,” he observed, ” ‘As soon as I shaved my head, it hailed.’ I am a little worried, but I am not getting out because India is bound to grow and this fall is temporary.” He is staying in even though he has to duck his father’s frequent “I told you so.”

Pawar is among hundreds of thousands of Indians who are nervously watching their investments after giving in to the fast-buck lure of equity mutual funds, a nascent Indian industry that grew by 45 percent last year, or about 40 million accounts.

For five years, the funds did well, helped along by an economy growing at nearly 8 percent a year, more jobs, higher incomes, falling interest rates paid by bank accounts, a dizzying climb of capital markets and a nation where two-thirds of the population is younger than 35.

India’s total assets under management grew 772 percent between 2004 and 2007 but dipped about 3 percent in the past three months.

There have been few panic withdrawals so far, but the number of new investors has slowed. Mutual fund companies are rushing to counsel nervous investors against selling and telling them to learn to live with risk.

Indians have traditionally been good at saving. A 2007 joint study by the National Council for Applied Economic Research and the insurance company Max New York Life found that about 81 percent of Indian households did so regularly, with more than half keeping their surplus income in bank accounts and a third simply stashing cash savings at home.

“Traditionally, you were looked down upon in India if you wanted to get rich quick. But that mind-set is now changing,” said A.P. Kurian, chairman of the Association of Mutual Funds in India. “Indians now want to climb the ladder of life quickly, and there is nothing wrong with it. This is the way the world lives.”

A report by the consulting firm McKinsey & Co. says India’s asset management industry is growing faster than those of developed economies such as the United States and Britain and emerging markets such as Brazil.

“It is hard to ignore the phenomenon of mutual funds with so many TV programs and newspaper columns on the subject. There is an explosion of interest, and this is just the beginning,” said Awadesh Singh, regional manager for Ski Retail Capital in the central Indian city of Bhopal. His customers, who include the new investor Pawar, get message alerts on their cellphones every two weeks about the value of their investments.

India’s first mutual fund company, the government-guaranteed Unit Trust of India (UTI), started in 1963. But it was only in 1993 that the government here allowed private companies into the industry. In 1996, officials drafted a strict and elaborate regulatory mechanism that governs the industry, including requirements for full disclosure of net asset worth and detailed offering documents.

But the real boom began only five years ago, when the industry launched an all-out campaign to wean the Indian middle class away from conservative, risk-averse savings. Between 2004 and 2007, television advertisements for mutual fund companies grew fivefold, according to TAM Media Research. The ads are governed by a long list of rules that include disclosure of risk factors and a ban on the use of celebrity promoters.

“In 2004, the mutual funds phenomenon was restricted to the top 10 Indian cities, but now it has expanded its presence and penetration in the markets of 30 Indian cities,” said Ashu Suyash, country head for Fidelity Fund Management, which started its Indian mutual funds division in 2005 and now has 1.5 million investors. “Mutual funds are now replacing investments in government bonds and deposits that were earlier considered safe.”

Although the markets have now steadied somewhat, the slowdown remains a challenge for people like Pawar. He is watching the slump anxiously. He recently sent an instruction to his agent: “Don’t send me bad news text message alerts every fortnight. Send me a message only when there is good news again.”