“Stock market returns have a statistically insignificant relationship with the investment decisions in equity and mutual funds,” said a research paper titled ‘Determinants of Household Saving Portfolio in India: Evidence from Survey Data’ by Chaitali Bhowmick, Sapna Goel, Amit Kumar, Rekha Misra, Preetika and Satyananda Sahoo. The views expressed in this article are those of the authors and do not represent views of the Reserve Bank of India.
The returns in the stock market, represented by BSE Sensex returns, do not exhibit any statistically significant relationship with assets like shares and mutual fund investment, the authors note. “Extant literature posits that the relationship between stock market return and stock market investment is not straightforward.”
But at the same time, BSE returns, however, significantly induce investments away from safe and traditional instruments like fixed deposits and post office savings instruments in urban areas, highlighting that some substitution may be underway, the authors say.
Interest rate on term deposits positively influences saving decision in assets like fixed deposits and post office savings while house prices have a mixed impact across rural and urban areas on savings in financial assets.
The empirical findings suggest that as the household income rises, the likelihood of owning financial assets and maintaining a well-diversified portfolio also rises. Additionally, the analysis reveals that occupation groups associated with higher job security and regular income streams tend to have higher saving propensity and a greater proportion of risky financial assets in their portfolios.At the macro level, despite an increase in annual savings (i.e., flow) in financial assets, outstanding asset holding (i.e., stock) observed from various rounds of the All-India Debt and Investment Survey (AIDIS) exhibits preponderance of physical assets, as a disproportionately higher share of households’ wealth is still allocated towards physical assets such as land and buildings.The authors admit limitations to the study because of lack of quantitative data availability. The study analyses the determinants of household savings in India for the period – 2014 to 2022 using ‘Aspirational India’ database of Consumer Pyramids Household Survey data from the Centre for Monitoring Indian Economy (CPHS-CMIE) which has qualitative information.
