The Financial Survey warned of a significant market correction in 2025, which may have a cascading impact on sentiment and spending, given the elevated participation of younger, comparatively new retail traders. Many of those traders entered the market post-pandemic and have by no means witnessed a big and extended market correction.
The distinctive investor base on the NSE surpassed the 10-crore mark in August final 12 months, tripling within the final 4 years and touching 10.9 crore on the finish of December. The variety of people who traded a minimum of as soon as a month within the NSE’s money market section elevated from about 32 lakh in January 2020 to 1.4 crore in November final 12 months. Family wealth in Indian equities has elevated by over ₹40 lakh crore within the final 5 years ending September 2024.
The survey highlighted the robust correlation between Indian and US equities. Between 2000 and 2024, the Nifty 50 posted a unfavorable return in all however one of many 22 cases when the S&P 500 corrected by greater than 10 per cent and averaged a ten.7 per cent decline.
“With the US comprising 75 per cent of the MSCI World Index, any correction in its market may have profound ripple results on international markets, together with India, underscoring the necessity for heightened vigilance,” the survey stated.
It added that the surge in US inventory market valuations to an unattractive zone, presently at their third highest ranges as indicated by Shiller’s S&P 500 CAPE (Cyclically Adjusted Value-Earnings) ratio, warrants warning. Over the past two years, the rally has been largely pushed by a couple of mega-cap expertise corporations resembling Apple, Microsoft, Amazon, Alphabet, and Nvidia.
To make sure, the rise in retail participation has led to a gradual decline within the 5-year rolling beta between the Nifty 50 and the S&P 500 within the final 4 years, suggesting a diminished sensitivity of Indian markets to US market actions. This decoupling is additional evidenced by the rising resilience of Indian markets during times of FPI outflows. For instance, in October final 12 months, the Nifty 50 corrected by solely 6.2 per cent, regardless of FPI outflows of $11 billion. In distinction, throughout the March 2020 pandemic-driven market sell-off, FPI outflows of $8 billion triggered a 23 per cent market decline.
Within the final 5 years, people invested a internet ₹4.4 lakh crore within the NSE’s money market section, with internet inflows final 12 months surging to a report excessive of ₹1.5 lakh crore till November. Direct and oblique possession of particular person traders, at 17.6 per cent as of September final 12 months in NSE-listed corporations, is now at par with FPIs. This hole was as excessive as 7.1 share factors in FY21.
“Even because the resilience demonstrated by the Indian market, supported by rising retail participation, is promising, the dangers related to a possible US market correction can’t be ignored, given historic developments,” the survey stated.
The rise within the variety of traders, nonetheless, could finally rework the securities market right into a extra various, inclusive, and sturdy platform for wealth creation, it added.
