Dr. M. Pattabiraman, a professor at IIT Madras and a prominent figure in financial education, has raised concerns about a growing misconception in Indian households regarding equity investments. Speaking on the "Financially Free" podcast, Pattabiraman highlighted the dangers of assuming that increased equity exposure guarantees higher returns, calling it a "dangerous money myth."
"People are acting as if the market party will never stop, which is scary," Pattabiraman warned, urging caution as the current bull run in equity markets may not last indefinitely.
Known for his expertise in mutual fund analysis and investment risk, Pattabiraman stressed the importance of maintaining a balanced investment portfolio. He argued that the belief that higher equity exposure always leads to better returns is misguided. "For the average investor, 50 per cent to 60 per cent equity is sufficient. A robust fixed-income portfolio is crucial for stability when markets decline," he advised, highlighting the need for diversification to manage risks effectively.
The concerns come amid a sharp rise in Indian household wealth, driven by the ongoing bullish equity market. Analysts from Motilal Oswal Financial Services (MOFSL) reported that Indian household financial net worth surged to 116 per cent of GDP in Q1 FY25, up from 88 per cent before the pandemic. This increase has been fueled by a significant uptick in equity investments, with listed equities now accounting for 28 per cent of household financial assets — up dramatically from 11.1 per cent in March 2023.
However, Pattabiraman cautioned that this overexposure to equities could prove costly when the market eventually cools. "I see people switching funds just because one gave a 15 per cent return and another 25 per cent. They act like these returns will continue forever," he remarked, pointing out the potential consequences of such behaviour.
In his discussion, Pattabiraman said the role of fixed-income investments as a safety net, particularly during market downturns. "When the market party ends, it’s your fixed-income investments that will save you," he added.
As Indian households increasingly embrace equity investments, Pattabiraman's advice offers a timely reminder of the importance of balance. With history showing that equity markets can and do experience corrections — such as the 3 per cent drop in household financial wealth during the early pandemic days — Pattabiraman's call for caution and diversification is more relevant than ever. "When the bull run ends, the fixed-income investments will be your safety net," he concluded.