Chief Economist at the National Stock Exchange of India
After months of a near one-way ride, global markets had a reckoning with fate in early August, as fears of a US recession materialised again with weak inflation and labour data, and lacklustre earnings by the US tech sector posed headwinds for global equities. A ‘carry-trade’ unwind in Japan, as investors worried about rising rates and an appreciating yen pushed Japanese markets to the biggest fall since 1987, only a few months after the Nikkei 225 had breached lifetime highs of the late 80s. Hopes of a rate cut by the Fed are strong now, with the first in September, followed by two more later in the year. Markets have since recovered to some extent but remain sensitive to data releases. Indian markets topped out above 25000 on market benchmark NIFTY50 before the correction, before recovering to 24,400 levels at the time of writing. What stood out though in our market was an equally impressive figure.
The total number of unique registered investors in India crossed the 10-crore mark in August, a little over five months since the 9-crore mark in February. Markets can be accessed through more than one broker, and the total number of accounts between these investors is nearly 19 crore. Somewhat similar is the number of accounts in mutual funds, held by over four crore unique investors. Between their direct and indirect investments, Indian households today hold nearly 19% of the market, Rs 81.4 lakh crore, which translates to nearly a fifth of their financial wealth, and 28% of FY24 GDP.
A combination of a rise in digitisation, investor awareness, improved market access, and its relative performance against other asset classes has driven increased market participation since the pandemic. It took over 25 years to have four crore investor, but the subsequent milestones have been crossed much sooner, with new investors predominantly in the 20-30 age bracket. The median age of investors in the market today is ~32 years, with 40% of them below 30 years. It was 39 years, just before the pandemic. One in five investors today is a female. The investor community is widely spread in the country, with all but 30 pin codes having at least one investor directly investing in the market. Maharashtra with 1.7 crore, Uttar Pradesh with 1.1 crore and Gujarat with 87 lakh investors lead the pack among states.
Market activity remained high in the month of July across several metrics. We had 27 listings (vs. 20 last month), five of which were on the Mainboard, and 22 in NSE EMERGE, which crossed 500 listings (514 at the time of writing). The total market cap of these companies is Rs 1.9 lakh crore, and they have together raised Rs 12,000 crore from the markets. Investor participation in the CM segment at 1.57 crore was the highest ever in July; their inflows this year at Rs47,000 crore is already higher than in all of FY24. Their share in overall turnover at 38% is also the highest since the 40% levels seen during the pandemic.
Our Story of the month records the ownership trends in across the listed universe. Some of the familiar themes seen in the past five years continue. Foreign ownership (FPI) of the market, driven by outflows and relative loss vs. other categories, and at 17.6% now is the lowest in 12 years. In contrast, the share of domestic mutual funds (DMFs) and individuals (9.6%) rises further. The steady rise of small and midcap stocks in the recent past has also led to the share of NIFTY50 companies in Individual investor portfolios fall to a 36.8%--a 22-year low. Even as the share of FPIs drops, the number of companies they have invested in continues to rise, esp. vis-à-vis DMFs, homegrown familiarity or otherwise. So while mutual funds today have invested in 1267 companies—their highest ever—FPIs have investments in 1733.
Back to the markets, Developed Markets (DM) equities (MSCI World Index) are up 11.1% this year, post the underperformance in August, and remain ahead of EM equities (5.2% YTD). The US 10-year yield has dropped by 65bps since June to 3.8%, pointing to easing economic growth and rate cut expectations. Indian markets rose to fresh lifetime highs as we wrote, before the global reality check, and are up 11% YTD. More in our markets section.
On the macro, we got another expected pause from RBI MPC, with food inflation expected to remain on the radar in the months ahead. A favourable base led the headline CPI figure to dip below the 4% target for first time since September 2019. While ephemeral, the plentiful and widespread rains this year bode well for food production and rural consumption. Apart from inflation and policy we also cover Union finances, IIP and a monsoon update in the macro section.
Our highlight this month has been the Indian investor community, now over 10-crore strong, and the wealth it represents. Reflecting 78 years after our Independence Day, the concept of independence takes several meanings, not the least of which is financial independence. Accumulating wealth in the markets requires a disciplined approach keeping diversification and risks in mind. The opportunity to participate in the India growth story comes with the benefits of compounded returns over time, allowing greater freedom in career pursuits, retirement planning, or simply for personal pursuits.