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India's Booming Markets Attract Young New Investors

India's booming stock markets are attracting many new investors in the country as they continue to reach new highs. But many first-time investors have yet to learn that what goes up may also go down. From New Delhi, Anjana Pasricha reports.

Monica Gupta, 26, began working three years ago in a consultancy company. She puts more than half her savings in stocks and mutual funds.

"I have got great returns on my investments. It's so much better than putting money in a bank," Gupta said.

Like Gupta, many young professionals are investing heavily in the stock market.

Prithvi Haldea heads New Delhi's Prime Database, which tracks trends in the markets. He says many first-time investors have been encouraged by countless stories of people who have doubled or tripled their investments, as the Mumbai stock exchange's Sensex index soared from 4,000 points in 2003 to more than 15,000 points this month.

"The young generation has tasted blood in the sense that they have huge earnings, and whatever investment they have made, they have been able to in a large number of cases, turn them into profits," Haldea said. "The numbers that are growing in terms of investor base, basically it is coming from this young generation."

Young professionals are not the only ones attracted by the buoyant stock markets. Many others in the expanding middle class have diverted savings to stocks and mutual funds as confidence grows in the future of corporate India.

As a result, household savings invested in equities and mutual funds have risen to about five per cent compared to just one per cent four years ago.

Market analysts however point out that this is still low compared to developed economies. They say many people are still hesitant to tie their fortunes to the stock markets as debate rages about the sustainability of their massive rise in recent years.

Prithvi Haldea is among those who believe that share prices have risen too high, too fast. He says the economy is on a roll and many companies are doing well but advises caution.

"Our market is slightly skewed in the sense that we lack both the width as well as the depth," Haldea said. "The number of companies that are listed of good quality, that number is still very small, and the floating stock that is available is very, very small, so any buying interest from large buyers basically shoots up the prices dramatically."

Other market watchers simply point to the statistics - Indian stocks offered an average annual return of 38 per cent in the last five years - and say the risk is worth it.