Retail investors a key strength of Indian stock market

This continuous rise in investment is attributed to an emerging trend of financialisation of savings

By HP Ranina/NRI Biz Matters

  • Follow us on
  • google-news
  • whatsapp
  • telegram

 

A man walks by stock prices on a digital broadcast on the facade of the Bombay Stock Exchange building in Mumbai. — AFP file
A man walks by stock prices on a digital broadcast on the facade of the Bombay Stock Exchange building in Mumbai. — AFP file

Published: Tue 23 Apr 2024, 4:44 PM

Question: The stock market is booming in India. Will foreign investors encash on their gains, resulting in a correction in the market?

ANSWER: It is possible that foreign portfolio investors and overseas funds may book profits in view of the rising market in India. However, this has not dampened the sentiment as more and more retail investors are now making it a habit to invest a substantial part of their savings in the capital market.


Retail participation in equities through the Systematic Investment Plan (SIP) route has seen a stellar rise. In March 2014, the number of mutual fund folios was less than 30 million. In ten years, this has grown to 110 million. The SIP driven rise of retail investors has provided mutual fund companies adequate ammunition which they have deployed effectively when foreign investors have exited the market. In short, retail investors are proving to be a counterbalance to foreign funds.

This continuous rise in investment is attributed to an emerging trend of financialisation of savings, a shift towards digitisation and ease of doing investments using the mobile platform and the Unified Payment Interface. There has been a marked shift from investments in real estate and gold as well as traditional bank fixed deposits towards stocks and securities. The current assets under management of mutual funds is estimated at Rs10.72 trillion. The growth in retail stock market investors is expected to be sustained in the coming months as the youth in India is favorably inclined towards financial sector savings.


Question: With global oil prices showing a rising trend, will India be able to manage and keep in check the current account deficit which it has successfully done during the last few months?

ANSWER: The demand for oil in India is increasing on account of the growth in the economy and therefore the import bill for crude is bound to increase. However, the current account deficit will continue to remain at a comfortable level in view of direct remittances to India increasing substantially, mainly from Indians working in the US, Europe and the Gulf.

Further, according to data released by the WTO in its recent report, India’s digitally delivered services exports are going up at a rate higher than expected. During 2023, exports of these services were $257 billion which are 17 per cent higher than the previous year.

India is now ranked fourth in the world as the exporter of these services, after the US, the UK and Ireland. These services include professional services using computer networks in the fields of manufacture, research services, education and healthcare. India accounts for one-fifth of the global services trade. This is likely to increase with the use of Artificial Intelligence including models capable of creating content.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.
H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

Question: Has the power situation in India eased during the last few years? There are still concerns about power shortages in certain parts of India.

ANSWER: The government is taking proactive measures to increase generation of power and to set up green energy projects. The present capacity of hydroelectric power is targeted to rise from the present level of 42 GW to 67 GW by 2031-32.

As a favourable monsoon is forecast for the current financial year 2024-25, it is expected that there would be a significant improvement in water reservoir levels. This will be supplemented by the snowmelt in the Himalayan region as a result of rise in temperature, leading to greater flow of water from this region.

Pumped storage projects are also gaining prominence in the country’s energy transition. It is expected that the PSP capacity will surge from 4.7 GW to around 55GW by 2031-32. Apart from the increase in capacity of hydroelectric power, renewable energy projects are being set up in the private sector which would boost power production from solar panels and wind turbines. Central and state governments are giving substantial fiscal incentives to private companies, one of which is in the process of installing four million solar panels which will produce 45,000 MW of power by 2030. The southern region of India which is currently facing a shortage will benefit by the increased capacity of green energy power projects.

H. P. Ranina is a practising lawyer, specialising in corporate and tax laws of India.


More news from Business