Indians, for long, have been savers. The country’s savings rate as a percentage of GDP is around 30.2 per cent, higher than the global average of 28.2 per cent. It is also significantly higher than that of developed markets like the USA and the UK, which have a savings rate of 18.1 per cent and 17.4 per cent.
However, many Indians, given their risk-averse nature, for long, preferred savings in bank deposits, government-backed schemes like public provident fund (PPF) and physical assets like gold and real estate. In recent years, though, a growing young population, which is much more risk-taking and is chasing higher returns, is rapidly driving a change towards investing in the capital market. Moreover, new technology has made it simpler to invest in mutual funds directly or open a Demat account for buying and selling stocks.
Data from the State Bank of India’s research department shows the share of bank deposits in overall financial savings declined from 47.6 per cent in March 2021 to 45.2 per cent in March 2023. During that period, the share of mutual funds rose from 7.6 per cent to 8.4 per cent.
If we look at a longer period, savings of households in shares and debentures rose from just 0.2 per cent of GDP in the financial year 2014 to 1 per cent of GDP in FY2024. The share in household financial savings has, in fact, grown from 1 per cent in FY2014 to 5 per cent in FY24, indicating that households are now increasingly contributing to the capital needs of the country.
“Since 2021, on an average, 30 million (3 crore) new demat accounts are added every year, indicating the increasing prevalence of using the capital market as a channel of financialisation of savings. This year’s number may cross the 40 million mark,” according to the SBI report.
Aided by the growing interest in capital market investing, the total number of demat accounts topped 150 million last financial year, compared with just 22 million in FY2014.
Amid this growing domestic investor interest, fundraising by Indian companies saw a tenfold jump in the last ten years. In the current financial year till October 2024, Indian companies had raised Rs 1.21 lakh crore, significantly higher than the Rs 12,068 crore raised in FY2014.
The National Stock Exchange’s market capitalisation has risen to Rs 441 lakh crore from just Rs 73 lakh crore during the same period.
“Declining mean/median age and increasing share of less than 30-year age individuals reflects the influx of relatively younger investors in the markets over the last few years, driven by technological advancements, lower trading costs and increased access to information,” the SBI report noted.
Shares of young investors under 30 years of age have risen to around 40 per cent now from 22.9 per cent in March 2018.
Interestingly, the report points out that 8 out of the top 10 states based on DBT (direct benefits transfer from the government) performance rankings have shown a rise in the share of total registered investors.
“Direct benefits, without leakages, is not only increasing consumption abilities but also leading to a rise in savings of beneficiaries, thus fostering a more inclusive financial ecosystem,” according to SBI’s research department.
Not just stocks, the share of mutual funds in financial savings has also sharply risen, with new SIP (systematic investment plan) registrations rising to 4.8 crore this year from 1.16 crore in FY2018. SIP contributions have accelerated to Rs 1.85 lakh crore from Rs 0.67 lakh crore in the same period.
Women participation in individual investor registrations has also seen a gradual increase from around 22.6 per cent in FY2022 to around 23.9 per cent this year.
The growing financialisation of savings also positively impacts the country’s economy, with the analysts pointing that a 1 per cent rise in market capitalisation leads to a 0.06 per cent increase in GDP growth rate.
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