Overconfidence leading to speculative market activity a concern: Eco Survey

The Indian stock market, the survey said, was among the best-performing markets, with India's Nifty 50 index rising 26.8 per cent during fiscal FY24, as against a drop of 8.2 per cent during FY23

Possibility of overconfidence leading to speculation for higher returns from the stock market is a matter of concern, the Economic Survey 2024 said. While the outlook for India’s financial sector appears bright, the Economic Survey 2024 tabled in Parliament on July 22 said, some areas will require focused attention going forward.

“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,” Economic Survey 2024 said.

 

The Indian stock market, the survey said, was among the best-performing markets, with India’s Nifty 50 index rising 26.8 per cent during fiscal 2023-24 (FY24), as against a drop of 8.2 per cent during FY23.

Thus far in calendar year 2024 (CY24), the S&P BSE Sensex and the Nifty50 indexes have risen over 10 per cent each, ACE Equity data shows. The rally in the mid-and small-cap indexes during this period has been sharper, with both these frontline benchmarks rising around 25 per cent each.

India vs Global Markets

A large part of this rally, analysts feel, has been driven by a surge in retail investor activity in the Indian stock markets over the last few years.

“Investors have taken to the stock markets like never before. Though it is good for the overall health of the markets and creates a vibrant stock market, a lot of this money has found its way into speculative activity in the futures & options (F&O) segment over the last few years. This needs to be checked,” said G Chokkalingam, founder and head of research at Equinomics Research.

And the data does support this.

The registered investor's base on the BSE now stands at over 18.2 crore, as per the latest data available on the exchange's website, a sharp rise of 4.5 crore (up 33.4 per cent) users in the last one year.

On its part, to boost participation of small/retail investors in the securities market, market regulator Securities and Exchange Board of India (Sebi) hiked the threshold for the basic service demat account to Rs 10 lakh from the current Rs 2 lakh. The new diktat will come into force from September 1, 2024.

For a developing economy such as India, the financial sector, the Economic Survey 2024 said, needs to support the banking sector and fill the gap in capital required for the economy's growth.

Therefore, the financial sector, the survey said, should expand at a pace that is in lockstep with economic growth. India, it said, can ill-afford the economy’s over financialisation at the current stage.

“The increased retail participation in financial markets and familiarity with financial products are beginning to grow in line with India’s emergence as the world’s fifth-largest economy. Therefore, firms operating in banking, insurance, and capital markets must keep the interests of the consumers in mind and improve their service quality through fair selling, disclosure, transparency, reliability, and responsiveness,” the Economic Survey 2024 said.