A Comparison of Risk and Return Between BSE Sensex and Bank Fixed Deposits

            
 
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Case Details:

Case Code : FINC059
Case Length : 17 Pages
Period : 1994-2008
Pub. Date : 2009
Teaching Note :Not Available
Organization : Bombay Stock Exchange
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Introduction

For the financial year 2007-08, the Indian economy recorded a gross domestic product (GDP) growth of 9 percent. This was the third year in a row when the Indian economy grew at the rate of 9 percent and above. In the financial year 2005-06, the Indian economy grew at 9.4 percent followed by 9.6 percent in 2006-07. The fast growing Indian economy has not only opened up new opportunities for wealth creation; it has led more and more people to invest in stocks and equity mutual funds.

According to a FICCI study, investments by households in shares and debentures as percentage of total financial savings increased to 4.9 percent in 2006 compared to 2.4 percent in 2005.

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At the same time, the share of the household sector in bank deposits came down from 64 percent in 2003 to 60 percent in 2004 and further down to 57 per cent in 2005. Over the last few years, more and more Indian households are prefering investments in stocks over fixed income instruments like fixed deposits in banks, public provident fund, post office savings instruments etc. mainly due to higher returns.

The return on fixed income investments has decreased in real terms over the last fifteen years due to increasing inflation (Refer Exhibit I for average annual WPI inflation rates in India for the years between 1992 and 2008).

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