Digital disruption: Impact on investments

Arun Thukral

The unilateral move of demonetisation to curb parallel economy has also given a huge thrust towards a digital India. It has encouraged people to be involved in fewer cash transactions and usage of electronic money. Earlier, the digital transactions were concentrated to the urban part of the country, but now millions of new users are onto country’s digital economic grid.

The penetration of mobile phones has increased. Digital revolution is catching up rapidly and is empowering the 100 crore+ mobile user base with access to cheap data. The internet has reached the nook and corner of the country and the banking system is completely computerised.

Enhanced banking network coupled with mobile banking has increased the confidence of public, at large, to save their hard-earned income in banks. Moreover, in an endeavour to increase digitisation in banking system (post-demonetisation), the government has encouraged every earning member of the household to open a bank account, making it easier to transfer the wages/salary directly to his/her bank instead of paying it in cash.

Over the past couple of years, the banking industry has been perceptive and vigilant to bring the bottom of pyramid of the society in banking financial system. This has resulted into opening of more than 26 crore new banking accounts under the Jan Dhan Yojana. Out of this, more than 50% of the accounts are connected to Aadhaar. Also, more than 60% of these accounts have availed the services of Rupay debit card.

The dynamics of transaction for both the government and the end user along with the banking system has changed radically with the financial inclusion using the Jan Dhan Aadhaar accounts. The beneficiaries utilising the Jan Dhan accounts are recipients of MNGREGA wages and subsidies of different formats. This has helped the government plug the leakages in the system i.e. the funds are now reaching the actual beneficiaries. Earlier, when paid in cash, say for every Rs 100 paid for public infrastructure, social cause or subsidies, a fraction would reach the final destination. This means, the funds allocated would now reach to those it was meant for — the poor and the needy ones.

The financial inclusion from the lower strata will help the economy in the longer run, as the people are now receiving 100% of their hard-earned earnings in their bank accounts, they would have more to spend and save. The saving habits of people, in general, would also change.

Earlier, people used to have substantial amount of cash at home to take care of the contingencies; now, since they find it safe to park in bank and easier to transact using round the clock banking facility, they opt to keep minimal cash in hand. With advent of numerous online payment modes viz., debit/ credit cards, e-wallets, UPI/USSD, Aadhaar- enabled payment services etc., they can now make the payments instantaneously without withdrawing cash from the bank, however small may be the amount.

This will also mean, reduced cash withdrawal and larger sum of their liquid assets in bank accounts and hence generating better returns for them. If educated properly, they may start investing their surplus funds in the right financial instruments, so that their funds are not only safe but also earn the best possible returns as per their risk-taking capacity. The shift of investments in physical assets like real estate, gold etc. to financial assets like equities, fixed income/debt market instruments, or ETFs will also reduce the concentration of assets held earlier by diversifying it into various options available in the market based on their risk-taking ability.

The bottom of the pyramid of the society, which constitutes around 50% of India’s population, are getting benefitted from digitisation as it has taken the banking system to their doorsteps. Over the period of time, these entities will be eligible for credit from the said bank or financial institutions depending on their banking history.

There is a vast opportunity opening up for the banking system in terms of attracting regular deposit, investment opportunities in the form of insurance (both life and non-life), participation in equity markets or fixed income instruments, cross selling different banking products etc. Digitisation will also enable the well to do investors who have their wealth concentrated into physical assets like say gold; get converted into electronic format viz., gold ETF. Real estate — a major asset in the portfolio of Indians is still held in physical format.

The government is taking positive steps towards digitisation in real estate through introduction of Real Estate Investment Trusts (REITs).

Dematerialisation of these physical formats of wealth (gold, real estate), which till now was locked in physical form, will enable it to be a part of the mainstream economy. This will enhance transparency in the ownership tree and hence, increasing the probability of using it as leverage/collateral or capital in the future scheme of things, as the individual or country economically progresses. As equities form part of mainstream economy, it will be big beneficiaries of shift towards financial assets from physical assets. Financial inclusion through equity as an asset class will be a necessary building block for sustainable growth.

Hence in the short run, the move towards digitisation will help the investment portfolio shift towards equities/debt market instruments/gold ETFs, while in the long run even REITS may find place in the portfolio of an investor. In a nutshell, digitisation will offer bouquet of investment options to an investor, at the click of a button.

The writer is MD & CEO, Axis Securities. The views expressed in this article are personal