Addition of 3 crore new demat accounts on an average every year since 2021 indicates increasing prevalence of using capital market as a channel of financialization of savings even as in the last 10-years, funds mobilized by Indian companies from capital markets increased more than 10-fold, from ₹12,068 crore in FY14 to ₹1.21 lakh crore in FY25 (till October), according to SBI’s economic research department (ERD).
This year’s number demat account addition may cross the 4 crore mark, per the ERD’s assessment. As at March-end 2024, the total number of demat accounts stood at 15.02 crore. In the current financial year so far, the total number of demat accounts stood at 17.76 crore.
“Women participation in individual investor registrations has shown a gradual increase since FY22 Nearly every 1 in 4 now a women investor.
“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,” per the ERD’s Ecowrap report.
Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, noted that the savings of households in ‘Shares and debentures’ has increased to about 1 per cent of GDP in FY24, from 0.2 per cent in FY14 and the share in household financial savings has increased from 1 per cent to 5 per cent. It shows that the households are now increasingly contributing to the capital needs of the country.
He opined that due to various measures, India’s financial inclusion improved significantly and now more than 80 per cent of adults in India have a formal financial account, compared to 50 per cent in 2011, which is improving the financialization of savings rate of Indian households. India savings rate is at 30.2 per cent, which is higher than the global average of 28.2 per cent,
“The share of net financial savings in total household savings has increased from 36 per cent in FY14 to 52 per cent in FY21, however during FY22 & FY23, the share has decelerated..FY24 trends reveal that the share of physical savings have again started to decline,” per the ERD.
Eight out of top-10 states (based on Direct Benefit Transfer performance rankings) have shown an increase in 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, opined ERD economists.
Female participation
The ERD underscored that women participation in individual investor registrations has shown a gradual increase since FY22, highlighting a steady improvement in gender inclusion within financial markets across the country .
Among large states, Delhi (29.8 per cent), Maharashtra (27.7 per cent) and Tamil Nadu (27.5 per cent) exhibit higher female representation than the pan India average of 23.9 per cent in FY25 YTD (year-to-date), while states such as Bihar (15. per cent), Uttar Pradesh (18.2 per cent) and Odisha (19.4 per cent) had sub-20 per cent female share in their respective registered investor bases.
Financial savings by asset class
Among financial savings, the share of bank deposits/currency is declining as new avenues of investment are emerging (like mutual fund, etc.)
As at March-end 2023, the share of bank deposits and currency in financial savings came down to 45.2 per cent (from 47.6 per cent as at March-end 2021) and 11.1 per cent (11.4 per cent), respectively.
As at March-end 2023, the share of life insurance funds, mutual funds and other (NBFCs, PPF, PF and small savings) has gone up to 21.5 per cent (from 20.8 per cent as at March-end 2021), 8.4 per cent (7.6 per cent), and 13.7 per cent (12.6 per cent), respectively.
The ERD said the increasing share of mutual funds in financial savings make them the most preferred instrument for financialization of savings. Further, the new SIPs registered increased fourfold since FY18 to 4.8 crore, leading to total SIP contribution of around ₹2 lakh crore.
Ecowrap said a 1 per cent rise in market capitalization leads to 0.06 per cent rise in GDP growth rate. The impulse response (which captures the dynamic effect of impulse variable (market capitalization) to response variable (GDP)) shows that 1 standard deviation shock in market capitalization has a positive impact on real economy with the impact drying out after three time periods.
The ERD economists observed that a higher market capitalization signals robust economy and higher investor confidence consequently driving overall economic growth.
