Equity in household savings to rise after short-term 'blip': Emkay Global

The decline in the share of equities in household savings is just a 'blip', according to analysts at Emkay Global, as they expect the share to climb over the next decade.

 

This is a pause in the long-term rise in household equity exposure, with the share of equities in savings expected to climb to around 45 per cent over the next decade, driven by mark-to-market (M2M) gains, strong incremental inflows and broader participation in capital markets, the broker said in a report.

 

It noted that the share of equities in household savings has declined by 184 basis points (bps) from the September 2024 peak to 27.9 per cent, largely due to stagnant equity markets and M2M effects. However, Emkay Global believes the structural drivers supporting equities, low post-tax real interest rates and robust earnings growth, remain intact.

 

   

Meanwhile, the share of gold in household savings has risen sharply by 855 bps over the past 12 months to 45.6 per cent, primarily on the back of M2M gains. Emkay Global said this increase is unlikely to have a meaningful impact, as historical data does not indicate a significant consumption boost from the wealth effect, nor any adverse effect on incremental equity flows. The brokerage added that there is no consistent historical correlation between gold prices and equity inflows.

 

Emkay Global also noted that while rising borrowings have led to a contraction in net savings flows, household loans have remained stable as a share of overall savings stock. Net household savings continue to be healthy at around 66 per cent of gross domestic product, and credit bureau data shows no signs of overleveraging in mainstream retail credit, excluding microfinance, it said.  ALSO READ | GST reset brings balance back to India's commercial vehicle market: Antique

FPIs to come back?

Emkay Global cautioned that the near-term outlook for foreign flows remains weak. The brokerage noted that the continued weakness in the rupee could keep foreign portfolio investors on the sidelines, with meaningful returns likely only after the currency stabilises for a sustained period.

 

It also expects a shaky start to 2026, as the Reserve Bank of India’s (RBI) efforts to defend the rupee are leading to tighter liquidity conditions, which could weigh on domestic flows in the short term.

 

However, Emkay added that the long-term outlook for domestic flows is robust. "Low nominal interest and withdrawal of tax benefits to debt mutual funds have made fixed income an unattractive option for long-term savers. Unless there is a deep and extended market correction (unlikely, in our view), we expect continued and sustained domestic flows into equities."

 

The brokerage said that the BFSI sector shows the sharpest divergence in positioning, with foreign portfolio investors overweight and mutual funds underweight, while the Information Technology (IT) sector exhibits the reverse trend.  ====================== 

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