Baby Elephant Syndrome in Financial Markets

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When an elephant living in captivity is still a baby, it is tied to a tree with a strong rope or chain every night. Since it is the nature of the elephant to roam free, the baby elephant instinctively tries with all its might to break the rope.  But it isn’t yet strong enough to do so. Realising its efforts are of no use, it finally gives up and stops struggling.

Later, when the elephant is fully grown, it still can be tied to a small tree with a thin rope. It could easily free itself by uprooting the tree or breaking the rope.  However, since its mind has been conditioned by prior experience, it doesn’t make the slightest attempt to break free. The powerful elephant limits its present ability by the limitations of the past. The psychologists call this the Baby Elephant Syndrome.

In Indian financial markets, we see the above syndrome getting played out amongst the investors, industry and also to an extent the regulators. The issues including scams faced by the financial markets in the 80s and 90s still haunt the investors and they stay away from Mutual Funds and Equity investments. Only Post Office Deposits, Bank FDs are entertained.

The market imperfections of the 80s and 90s are things of past with Electronic Trading, Dematerialization of Shares, robust Regulations and excellent Regulatory oversight. Globally Indian market systems and processes are recognised to be amongst the ‘Best in Class’. Global investors believe in that and they have been reaping rewards through investments in Indian markets.  Unfortunately, domestic investors, particularly retail investors are still worried of Indian capital market and are reluctant to participate. This is predominantly based on past experience and the stories from 80s and 90s. The baby elephant syndrome is acute amongst the lower and upper mid income segments of the society. The capital market is seen as a den of speculators and participation in the market is compared to gambling.

Like the huge elephant being tied to a pole or a tree with a thin rope, domestic investors are bogged down by the history. The benefits of Indian economic growth are not being availed of by them through the capital market investments. Globally, wealth creation has happened on a significant scale through the capital market. Even Indian capital market has helped in creating wealth, for the participants.

The above problem needs to be tackled both by the financial services players and the relevant regulators by overcoming their respective baby elephant syndrome. Effective communication and distribution strategies should go hand in hand to attract a larger retail base for the financial product and services.  The notion that the market is only limited to the few metro cities, needs to be junked and the whole hinterland needs to be explored and approached for selling financial products and services. Adequate communication and marketing will enable the process. Though the rewards may not be immediately visible, in the long run virtuous cycle will start if adequate efforts are now made. The industry also needs to work with the government and regulators to create an enabling environment and regulations to facilitate the wider participation.

On the part of the Regulators, more flexibility in marketing and distribution of financial products along with a focus on market development (as opposed to only regulation) is the need of the hour. Malpractices by a few players in the past shouldn’t dictate the regulations for marketing and distribution. No product or services anywhere in the world can be effectively sold without proper marketing and distribution. The Regulator needs to appreciate this and create enabling regulations to facilitate the same. This can go a long way in taking the financial markets to the hinterland as opposed to today’s state of few city centric market development.

Irrespective of political and economic opinions and the divergence of the respective estimates, it can be safely predicted that India would grow at the rate 7 – 9% at least, over the next decade. Thus, this can be the golden decade for the Indian retail investors provided we act now and come out of our collective baby elephant syndrome.

 

About the author: Sudip Bandyopadhyay

Sudip Bandyopadhyay is currently the Group Chairman of Inditrade (JRG) Group of Companies. He sits on the Boards of a number of listed and unlisted companies. His area of expertise includes equity, commodity and currency markets, wealth management, mutual fund, insurance, investment banking, remittance, forex and distribution of financial products. During Sudip’s 16 years stint with ITC as Head of Treasury and Strategic Investments, he managed investments in excess of $1.5 billion. He was responsible for the acquisition of strategic stakes in EIH, VST and several other companies, by ITC. Post ITC, he was the Managing Director of Reliance Securities (Reliance Money) and also on the Board of several Reliance ADA Group companies. He was instrumental in leading Reliance Anil Dhirubhai Ambani Group’s foray, amongst others, into Equity and Commodity Broking, Commodity Exchanges, Gold Coin Retailing, and Money Transfer. Afterwards Sudip was the Managing Director and CEO of Destimoney, promoted by New Silk Route, with over $1.4 billion under management. Sudip has significant presence in business media through his regular interaction on leading business channels, business newspapers and magazines.Author can be reached at [email protected]

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