 Hello and let's talk about the blooming stock markets. Almost every important international agency is predicting grave times ahead for the global economy. The IMF says that global growth for the year will be at minus 4.9% and the International Labour Organization says that 305 million jobs have been lost globally. India is following these global trends too. We see this both in media reports, in research reports and in the day-to-day realities of our lives. When losing jobs, businesses are shutting down, manufacturing isn't the doldrums. And worst of all, there is no sign of the pandemic relenting. Amid all of this, surprisingly the stock market continues to do well. Some weeks ago, we discussed this issue of the stock market on the show and this positive trend continues. According to a report in Indian Express, the Sensex has gained 40% since March 23rd. So how is this happening? Who is investing? And what does this mean for the markets in India as a whole? We talked to journalist Anindu Chakravarti to find out. Thank you Anindu for joining us. So a couple of weeks ago, we did talk about the stock market itself, the fairly unique and strange situation of the stock market doing very well, even as economies all around the world are banking, so to speak. And that trend about the economies continues. But let's talk a bit more about what this implies and you also written about it. So to begin with, the key question, just for some setting context once again, does the same reasons stick for the stock market continuing to rise as in why are people continuing to invest in them and who are these people in the first place? So obviously most of the people, you know, there are about four crore DP accounts in India. DP accounts are accounts that you need to invest in the stock market, out of which the last data that was available says that 75% are dormant, they're inactive. So which means that about one crore DP accounts are active. Amongst them, now one crore DP accounts means less than one percent of India's population. So in some cases it would be two DP accounts within a single family and maybe there would be some double DP accounts. I mean, a person might have DP with two separate accounts and one is dormant. So in any case, let's say one crore active DP account. But broadly, if you look at households, I would say not more than 1.5% of India's population because the rich would have two or three DP accounts in a single family. That's very likely. Now the point is this tells us that we know that if we look at the last available income tax data that those who earn more than about 2 lakh rupees a month, which is taxable income in terms of household income would account for about I would say 0.5% to 0.4% to 0.5% of India's total population in terms of households. Again that means that it's just the top 1% who own 73% of all wealth who are investing right now. Now you would wonder where are they getting the money when everything has been shut down the economies in such a terrible situation. It is true that the rich have been affected in this lockdown. Money flow has been affected. Many people who have businesses, their businesses aren't running, they're shut, CFOs, CXOs, CEOs, top management in corporate sector, big financial sector people, they have had pay cuts, significant pay cuts, maybe their bonuses have been held back. Even if you look at that, they have massive amounts of savings already, assets, property. So many have two, three homes from which at least two out of them get them rent. So they have this monthly rent flow which comes in. Many have loads of cash in fixed deposits. So they earn interest every month from that. They have bonds, they have stock investments which give them dividends. So there is a continuous flow of money which comes in from their financial assets and from their property. Even if they don't have an actual income flow coming from productive assets. They have that money. Now across the world, we know what has happened is that the rich are saving more. Why? Because this is the time when people go for their foreign holidays and they spend lakhs of rupees on that. They haven't spent any of that money. They're sitting with them. They haven't gone out to their 5-star hotel, favorite 5-star hotel to eat and spend 10,000, 320,000 rupees in a single meal. They haven't thrown lavish parties which with catering would run into run bills of lakhs of rupees. So all that money is being saved. It is additional savings. So across the world, the rich are spending less, earning less, spending less and saving more. What can they do with these financial assets? We know Prashant that across the world, central banks have made it easier to borrow for businesses. This is the dogma of neoliberalism, we know, that reduce interest rates as much as possible. Apparently, if you reduce interest rates, people will borrow and this will read to massive productivity. We know that this doesn't necessarily happen. There are external reasons for why investments take place. Now what does that mean? That means that anyone who saves their money in a long-term deposit in a bank isn't getting good returns. I think that fixed deposits now fetch you about five and a half percent beyond a year. They are taxable, your returns are taxable. So if you're in the highest income bracket, which the rich people would be, then after deducting tax, you'll get three and a half percent. That is, Prashant, less than inflation right now. So you can imagine what that means. That means that you'd rather spend it today than save it because it's less than inflation in your return. That is what is pushing a lot of these additional savings into the stock markets. So the key question here is that does this stock, this is spending in the stock market count is some form of investment as well, in the sense that we traditionally understand investment because a lot of the discussion around the economic situation has been about how the people are not able to spend. Of course, we're talking about the middle classes and the lower middle classes more. But in terms of the larger economy itself, does this actually mark a sign of people spending or is it something else? In my opinion, it's a sign of a complete lack of faith and hope in the economy. It's pure sign of uncertainty. Why? Because let's take two sets of data here. What we call market turnover is the total transactions buying and selling that is taking place in the market. So if you add market turnover, and this is data presented by my friend Prashant Nair on CNBC TV18, essentially what you see is that market turnover in June has gone up sharply. If you take the average of January to May, then compared to that June market turnover is about 52% more. 86 odd percent of that market turnover, if I remember correctly, is from individual rich people, high net worth individuals, individual DP accounts, and small brokerages. Total investment in early July is now just about 14% of the total market turnover, which means that no one is actually investing for the long term. Simultaneously, let's take May versus June, Prashant. I talked about market turnover. In June, market turnover went up by 37% compared to May. That means number of transactions have gone up significantly, and the value of those transactions have gone up significantly. But money flowing into equity mutual funds, which is mutual funds which invest in stock markets, went down by 95%. Why? Because people took out their money from mutual funds. They redeemed it. Redemptions in equity mutual funds went up by 75% compared to May, which means that people have no faith in the future. They don't want their money locked up. They don't want to give it to a fund manager. They don't have faith in the long term economy. They don't have faith in fund managers. So they're basically taking out their cash. They're saying, let me have this cash with me. I'll try and do my best to earn whatever I can. I'll earn it by trading. Here's another important point to look at, which is deliveries. Now what is a delivery? In the old days, if you bought a stock, Prashant, then this was before, I think, the late 90s or early 2000s. If you bought a share, then you essentially got a piece of paper. It said that you have got so many, it's a share certificate, right? And many people saved those share certificates and passed it on over generations. And much later, you saw that, okay, I'm pretty rich because my grandfather bought some shares. I mean, some lucky people, unfortunately, I'm not one of those. But now everything is dematerialized. Share markets actually moved to electronic medium pretty early. So this is why it's called a DMAT account, right? But you still get a share certificate when you buy it. When you get that share certificate, it means that share has been delivered to you from the previous owner. This is called delivery. Now when you take delivery, when you want to keep that share, you want to see that money grow. And then when you sell it, you'll have to hand over that share certificate. Delivery moves on to someone else. So when we look at the percentage of delivery, it gives us a sense as to how many people are trading in the short term. They're buying a share, looking at the price, when the price goes up, they're selling it. They're not actually looking at the underlying business at all. Deliveries right now in June were at 15% of the total number of shares being bought, 15%. If 100 shares were being bought, only 15 were being, delivery was being taken by people. Now this is the lowest in the last 17 years. I just looked at the data on NSE. This is National Stock Exchange, which is the massive volume, most of the volume right now. This is the lowest since 2003 March, that is 17 years. Even in March, National Stock Exchange delivery was close to 21%. So when the markets have gone up by 40%, deliveries have gone down sharply to just 15%. That tells you very clearly that people are speculating. They're using it as a gambling space. Rich people are putting in money, when it rises, they're selling it, they're quickly selling it, they're coming out, which is why you're seeing these market fluctuations take place so quickly and so fast as well. No, please wait. No, I'm just saying it's a clear sign that the people feel that we don't know what's going to happen. Exactly. Let me keep my money. Why should I hand it over to someone? We know what happened to the Franklin Templeton credit funds. They crash. That money is not coming back to people for the next four or five years. That is the estimate being made. So people are saying we don't want to hand it over to the next part. I don't care. Let that expert be an expert. I'll make my money as much as possible right now and if I can't, I'll get out as quickly as possible. I'm not going to sit there, watch my money drop from a sensex level or a nifty level of 12,500 odd to crash to 8,000. I don't want that to happen. I don't want someone else to hold my money. As soon as it starts to fall, I'm going to get out. I'm going to keep my money around me as close as possible. And we have talked about what Richard is doing clearly. The question is what about the not so rich, the middle class who are investing in various formats, especially in the market also? There's been an interesting thing that when I started tracking the stock markets in 2005 as when I was part of a stock market business channel, I was one of the people running it and I had to anchor daily news stock market news. We used to notice that if the markets went up in the US, the next day markets went up in India. If they fell, markets fell in India. Now there's been a bit of what is called decoupling. That's because most of the investment that has taken place in the recent past has been from mutual funds, from domestic institutions, which includes the LICs of the world, government as well. FII is no longer determined the market movement or market move. Lot of the money is actually from domestic institutions. Why? Because mutual fund participation has increased over the last few years and lot of these mutual funds allow you to invest even 500 rupees. So a lot of people, middle class, middle class, low middle class people have entered this mutual fund space. One reason is because interest rates are so low. So you're not going to get a good return on putting your money in the bank. People are putting in a little bit. Now these people are going to get caught because what happens? Let's say that the rich have put in their money and they're going to get out as soon as the market starts to crack. Something happened in the US. Suddenly COVID-19 recovers. What will happen? The market will crash. There's some geopolitical tension. The market will crash. The rich will essentially try to get out right then. So what we call supply of stock in the market will increase dramatically. And there won't be any bias. What happens then? That the market keeps collapsing. The middle class investor is going to carry the can. Essentially the middle class investor has no control over the money because they also don't have the confidence. Only the rich have confidence about their money. The middle class don't. The middle class stay away from the markets also because they don't have confidence. They don't think they're going to get richer. The rich think they'll keep getting richer. Right now they're a little uncertain and underconfident. So the rich will take the profits, the middle class, the low middle class, who were forced into the stock markets over the last few years thanks to tax policies and the fact that the central banks prodded by the government had brought down interest rates. They will be holding and seeing that their wealth has got wiped out. The money that they've saved over the years, year after year, putting in little by little every few months, they will see that money basically collapsing. Rich will get richer. The middle class will actually move further down. The divide within the middle class between the upper middle as the affluent and the lower middle class, this is going to increase. Thank you so much Aranjeev for talking to us. Thank you Prashan. That's all we have in this episode. Let's talk. We'll be back on Monday with major news developments from the country. Until then, keep watching NewsClick.