The Financial Survey warned of a significant market correction in 2025, which might have a cascading impact on sentiment and spending, given the elevated participation of younger, comparatively new retail buyers. Many of those buyers entered the market post-pandemic and have by no means witnessed a major and extended market correction.
The distinctive investor base on the NSE surpassed the 10-crore mark in August final yr, tripling within the final 4 years and touching 10.9 crore on the finish of December. The variety of people who traded at the least as soon as a month within the NSE’s money market phase elevated from about 32 lakh in January 2020 to 1.4 crore in November final yr. Family wealth in Indian equities has elevated by over ₹40 lakh crore within the final 5 years ending September 2024.
The survey highlighted the sturdy correlation between Indian and US equities. Between 2000 and 2024, the Nifty 50 posted a adverse return in all however one of many 22 situations 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 might have profound ripple results on world markets, together with India, underscoring the necessity for heightened vigilance,” the survey mentioned.
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 Worth-Earnings) ratio, warrants warning. During the last two years, the rally has been largely pushed by a number of mega-cap expertise corporations equivalent to Apple, Microsoft, Amazon, Alphabet, and Nvidia.
To make certain, 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 growing resilience of Indian markets during times of FPI outflows. For instance, in October final yr, the Nifty 50 corrected by solely 6.2 per cent, regardless of FPI outflows of $11 billion. In distinction, through 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 web ₹4.4 lakh crore within the NSE’s money market phase, with web inflows final yr surging to a file excessive of ₹1.5 lakh crore till November. Direct and oblique possession of particular person buyers, at 17.6 per cent as of September final yr in NSE-listed corporations, is now at par with FPIs. This hole was as excessive as 7.1 proportion 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 neglected, given historic tendencies,” the survey mentioned.
The rise within the variety of buyers, nonetheless, could finally remodel the securities market right into a extra numerous, inclusive, and sturdy platform for wealth creation, it added.
