Survey cautions on rise of retail investors in stock mkts
New Delhi: The Economic Survey on Monday cautioned against significant increase in retail participation in the stock markets, saying expectation of higher returns without real market conditions is a matter of concern.
At the same time, it also mentioned that enhanced participation of retail investors lends stability to the capital market and noted the increasing interest of these investors in the derivative trading. Over the last few years, the Indian capital markets have seen a surge in retail activity through direct trading in markets through their accounts and indirect trading through mutual fund channels.
According to Economic Survey 2023-24, retail investors’ share in the equity cash segment turnover was at 35.9 per cent in FY24. The number of demat accounts with both depositories rose to 1,514 lakh in FY24 from 1,145 lakh in FY23.
The impact of this influx of the investors in the market is also reflected in new investor registrations with the exchanges, their share in total traded value, net investments, and ownership in the listed companies. For instance, the registered investor base at NSE has nearly tripled from March 2020 to to 9.2 crore as of March 31, 2024, potentially translating into 20 per cent of the Indian households now channelling their household savings into financial markets.
“The significant increase in retail investors in the stock market calls for careful consideration. This is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern,” the Economic Survey said.
The survey noted that a rise in retail participation was more substantial and steadier through the indirect channel —mutual funds. The FY24 has been a spectacular year for mutual funds as their assets under management increased by Rs 14 lakh crore or 35 per cent year-on-year to Rs 53.4 lakh crore at the end of FY24, boosted by mark-to-market gains and expansion of the industry. The total number of folios increased to 17.8 crore at the end of FY24 from 14.6 crore at FY23-end.
Some of the factors that facilitated the entry of investors included seamless technological integration, government measures towards financial inclusion, growth of digital infrastructure, rapid smartphone penetration, a rise of low-cost brokerages, the pursuit of generating income from alternative sources and lower returns generated by traditional asset classes such as real
estate and gold.
