‘Retail interest in stocks to spur infra’

Increasing retail participation in the stock market — assuming it is here to stay — could enable a larger resource pool for financing India’s infrastructural requirements, Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India (SBI) said in a report.

“Lower rate in other saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market,” he said in the report by SBI’s Economic Research Department. “Another reason could be the significant increase in global liquidity,” he added.

“Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals’ tilt towards stock market trading. However, it is yet to be seen if this increasing retail participation is transitory or the beginning of long-term behavioural change?,” he added.

Stating that the share of total household savings in India in shares and debentures is likely to increase from 3.4% in FY20 to 4.8-5% in FY21 (or 0.7% of GDP from 0.4% of GDP in FY20), he said it was still much lower than the 36.5% in the U.S.

This, he said, indicated the significant upside to household participation in equity investment.

“If we consider this to increase further to 1% of GDP and further, even if half of this can be tapped and channelised into infrastructure spending, then it can cover around 24% of the IBER (other than Railways) of the government in FY22,” he said.

Highlighting that the number of individual investors in the market has risen by 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL, he sad another 44.7 lakh retail investor accounts had been added during the two months of this fiscal.

Also, the share of individual investors in total turnover on the stock exchanges has risen to 45% from 39% in March 2020 as shown by NSE data, he said.

He said the market capitalisation of Sensex has climbed 1.8 times from a year earlier. However, sector-wise, the one-year return in Indian stock markets indicates that IT and materials have performed better.

“This clearly indicates the movement in Indian stock market is increasingly being clearly interlinked with a supposed infrastructure power play in the coming days,” he said.

However he said the rise in stock markets without significant development in the real economy may raise the issue of financial stability, which, as per SBI’s financial stability index, showed modest improvement in April 2021, but was lower than the peak witnessed in December 2020. “However, it is expected to have declined in May ’21,” he said.

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Printable version | Jul 28, 2021 1:15:49 AM |

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