All that glisters is not gold.

After shunning the stock market for years retail investors have started dabbling in shares since March of this year. Yet in August we were told that retail investors had been selling out since 2008 and households comprised just 2% of the equity market. That is not a surprise because hapless investors have been duped many times and Ketan Parekh is still manipulating the market despite being banned from trading till 2017 by Sebi. The previous Finance Minister wanted to increase the number of retail shareholders from 16 million to 150 million. He even started the Rajiv Gandhi Equity Savings Scheme to trap ordinary people. Why? Surely not for our good? He is the man who destroyed the economy by starting the NREGA scheme, forgiving all loans to farmers and vastly increasing civil service pay. He also started the Securities Transaction Tax in 2004, as soon as he came into office, but reduced it in 2013 to entice people into buying shares rather than gold. People were buying gold to hedge against double digit inflation which was eroding the value of our savings through negative real interest rates. Tax on import of gold was raised in steps from 2% to 10% and an 80:20 law forced jewellers to export 20% of the total gold imported by them. Import of gold fell off but smuggling became very lucrative to satisfy the latent demand. This is bad for the economy because the government cannot collect tax on smuggled gold and there is no account of the total outflow of precious dollars. Seems that ordinary people are at last investing in stocks, probably lured by the dramatic rise in the Sensex in the last few months. But should they? After the sub-prime crisis of 2008 share markets all over the world recovered gradually but the Sensex bounced back in a U shaped curve. The stock market lacks depth, in that the market capitalisation of the top 10 companies is 28.4% of the total market capitalisation of BSE 500 companies. A recent study based on 3 parameters ranked India as the sixth most expensive stock market in the world, higher than UK, Germany and China. Entering at these levels means that there is a great chance of getting burned, given the uncertainties in the world with the conflict in Ukraine, the free for all in the middle east and the Ebola epidemic in west Africa, to name just a few. It has been shown that people do not make rational decisions when investing money, so to tempt them with wildly optimistic talk of the Sensex reaching 400,000 in 15 years is grossly irresponsible. The recent jump in the purchase of gold, when the Reserve Bank relaxed the 80:20 rule, shows that people still do not believe the authorities that inflation will be controlled and that the value of our money will not continue to erode away. It is good to be cynical.