The Economic Survey 2023–24 has cautioned retail investors about the risks of excessive speculation in the stock market. Coming a day ahead of the Union Budget, the survey has stressed the importance of a balanced approach to financial market growth.

Drawing parallels with past global financial crises, such as the 2008 financial meltdown and the 1997-98 Asian financial crisis, the survey warns that a similar crisis could impact India if the surge in retail investment leads to overconfidence and speculative behavior. This might not align with real market conditions, the survey said.

Economic Survey On Stock Market |

🚨Significant rise in retail investors in stock market calls for careful consideration

🚨Possibility of overconfidence leading to speculation & expectation of greater returns#EconomicGrowth #EconomicSurvey2024 #EconomicSurvey #StockMarket pic.twitter.com/M2JUvrUofu

— CNBC-TV18 (@CNBCTV18Live) July 22, 2024

Still a developing economy, the survey emphasises the need for an orderly and gradual evolution of India’s financial markets.

It warns against over-financialisation risks, suggesting that the financial sector’s growth should be in sync with the broader economic expansion.

This is crucial as the financial sector is expected to support the banking sector and bridge the capital gap essential for the country’s growth.

The survey also highlights that while retail investor participation and familiarity with financial products are increasing, this growth must be managed carefully.

It suggests banking, insurance, and capital markets to prioritise consumer interests and enhance service quality.

Emphasis is placed on fair selling practices, transparency, and reliability to ensure that commercial goals align with long-term national interests.

Retail participation in India’s financial markets has sharply increased as the country emerged as the fifth-largest economy.

According to a report by domestic brokerage Motilal Oswal, combined ownership of DII and retail investors in the free-float market has risen to 62.9% in March 2024, up from 55.1% in March 2014 and 58.7% in March 2019.

With this, concerns over the shift of funds from bank accounts to broking accounts amid robust credit growth have also emerged.

SEBI’s Chairperson Madhabi Puri Buch recently highlighted that the surge in F&O trading volumes has escalated from a micro-level concern to a macro-level issue, potentially disrupting economic growth.

RBI Governor Shaktikanta Das has also expressed concerns about the implications of the trend for the banking sector.

Additionally, Ajay Bagga, Executive Chairman of OPC Asset Solutions, has pointed out the rise in retail investor participation in the Indian stock markets, with record levels of mutual fund investments, stock trading accounts, and retail involvement in derivatives markets.

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