Economic Survey 2023-24: Caution Urged Over Retail Investor Surge Amid Growing Market Participation

Derivatives trading holds the potential for outsized gains. This is driving active retail participation in derivatives trading

Widening Base:

• Registered investor base at NSE tripled to 9.2 cr in FY24
• Retail investors’ share in equity cash segment at 35.9% in FY24
• Demat accounts with both depositories rose to 1,514 lakh in FY24 from 1,145 lakh in FY23

New Delhi: The Economic Survey on Monday cautioned against significant increase in retail participation in the stock market, 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 derivatives 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 2023-24 (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 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,” said the document tabled by Finance Minister Nirmala Sitharaman in Parliament. 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 (AUM) increased by Rs14 lakh crore or 35 per cent year-on-year to Rs53.4 lakh crore at the end of FY24, boosted by mark-to-market (MTM) gains and expansion of the industry.