Interest rates hurting stock market culture in India: Experts

Feb 11 2013, 12:54 IST
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SummaryA high interest rate environment makes people relatively relaxed, complacent: Citi

A high interest rate scenario wherein people can get almost 10 per cent returns on low-risk products like fixed deposits is coming in way of a diverse stock market culture getting developed in India, experts say.

"One of the reasons for equity culture not developing to desired levels is the high interest rate scenario in the country. A high interest rate environment makes people relatively relaxed and complacent, when it comes to making investments," global banking giant Citigroup's Head of Markets (South Asia) Pankaj Vaish said.

"For most households, it is attractive to park the money in a bank account and other deposits for almost 10 per cent returns with virtually zero risk, as against risking their money with equity even if the returns could be higher," he said.

Vaish, who was here for an event organised by Citi in partnership with Cambridge-based renowned business school MIT Sloan School of Management, said it will take some time and investor education for the people to get comfortable with the equity culture.

"It is a competitive marketplace, when you see the equity market pitched against corporate bonds providing interest at around 10 per cent, by some of the big names in the public and private sectors.

"Our culture is such that people are more comfortable ensuring the security for their investments, rather than merely looking for high returns. Hopefully the next generation would have the appetite to take greater calculated risks," Vaish added.

Asked about India's growth potential on the global stage, Vaish said that there was a time when people here were satisfied with a three per cent growth rate, but the times have changed and the aspirations are high today.

"This is something we need to be cognizant and careful about in a democracy. At times we blame the slowness in the economy on our democracy, but it is the democratic systems and institutions which ensure that the aspirations of our citizens are met.

"If the aspirations are not fulfilled and we do not provide the opportunities to our youth, then not only is it an unused asset but the accumulated unfilled aspirations can be a huge debt that we will have to service," he said.

Asked about the issues before Indian economy, MIT Sloan School of Management's Deputy Dean S P Kothari said leaders of the country need to introspect why India is given low rankings on various economic parameters by the agencies like the World Bank and

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