Lower Interest Rates Has Led To Greater Interest By Individuals In Stock Markets

Lower rate in other saving avenues amidst the low interest rate regime has led to greater interest by individuals in the stock market, SBI has said in its Ecowrap report.

"Another reason could be the significant increase in global liquidity. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals' tilt towards the stock market trading," SBI has noted in the report.

According to the report, it is yet to be seen if this increasing retail participation is transitory or the beginning of long term behavioural change?

"Additionally, the rise in stock market without significant development in real economy may raise issue of financial stability which as per our financial stability index shows modest improvement in Apr'21, but lower than the peak witnessed in Dec'20. However, it is expected to have declined in May'21," the report said.

The number of individual investors in the market has increased by a whopping 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. Furthermore, another 44.7 lakh retails investor accounts have been added during the two months of this fiscal. Also, the share of individual investors in total turnover on stock exchange has risen to 45% from 39% in Mar'20, as shown by NSE data.

According to the SBI report, increasing retail participation if it becomes the norm could also enable a larger resource pool for financing India's infrastructural requirements.

"For example, the share of savings in shares and debentures to total household financial savings at 3.4% in FY20 is likely to increase in FY21 to 4.8%-5.0% of total HH financial saving, (or 0.7% of GDP from 0.4% of GDP in FY20), which is still much lower than 36.5% in the US, indicating the significant upside to household participation in equity investment. On a separate note, if we consider this to increase further to 1% of GDP and further even if half of this can be tapped and channelized into infrastructure spending, then it can cover around 24% of the IBER (other than Railways) of the Government in FY22. Other option for financing infrastructure that is also being explored is the InvIT (Infrastructure Investment Trusts)," the report has said.