'Any unchecked explosion..' Nirmala Sitharaman wants middle-class money in markets protected

Union Finance Minister Nirmala Sitharaman said more and more Indians were now investing in stock markets and their household savings must be ringfenced. At a BSE event, the finance minister red flagged growing retail participation in the derivatives market.

“Any unchecked explosion in retail trading in the futures and options market can create future challenges for the market, investor sentiment, and household finances,” Sitharaman said. Trading in F&O has been a concern as many retail investors have lost their hard-earned money. 

Last year, a study by Sebi showed that nearly 89 per cent of the individual traders — 9 out of 10 individual traders — in the equity F&O segment incurred losses with an average loss of Rs 1.1 lakh during FY22. Further, 90 per cent of the active traders incurred average losses of Rs 1.25 lakh during the same period, the study said.

BSE said last week it was taking steps to mitigate sudden spikes in options prices and had ramped up surveillance measures.

Sitharaman appealed to BSE to work closely with SEBI in order to ensure stringent compliance and robust regulatory standards to ensure investor confidence remained intact and to play a proactive role in promoting higher standards of corporate governance among listed companies.

“Household savings have made a generational shift (from traditional instruments to equities), and we want to safeguard that,” Sithraman said. “Exchanges need to ensure market stability, mitigate systemic risks, and adopt technology in the form of blockchain, AI, and big data to improve market efficiency.”

With Covid-19 and online KYC acting as triggers, families were allocating a portion of their savings to equities as opposed to just post office savings, fixed deposits, or chit funds.

This had resulted in a surge in demat accounts to over 15 crore. Mutual fund assets had grown 576 per cent to ₹54.1-lakh crore in the last decade. Average monthly SIP contributions had grown 4.5 times in the last 7 years to ₹16,600 crore. 580 companies had raised more than ₹3-lakh crore through IPOs.

“Investors are better informed and more trusting of stock markets. Retail money has become a counter-balancing force to FPI flows,” said Sitharaman, adding that the move to a shorter T+1 and same-day settlement cycle had increased confidence in the Indian equity market.

Sitharaman also assured Dalal Street about the stability and majority of the next Modi government.

Discounting the recent volatility in market and the heavy selloff by foreign investors, the minister, while addressing business editors here Tuesday said, “I inherently believe that the stock market and its conduct is on its wisdom. It has its own assessment of the situations.. The market watches the global situations and other stock market situations very closely and behaves on its own wisdom. But all I can assure you and everyone out there is that there is absolutely no need for investors to worry about the outcome of the ongoing polls.”