Taking the stock market to the masses

Mutual funds and brokerage accounts are relatively expensive for ordinary Indians. The NPS can help.

- SAURABH MUKHERJEA

After hitting a COVID-19-induced low in March 2021, the Nifty 50 has doubled, driven both by foreign flows (FPI inflows into the Indian stock market amounted to $14 billion over FY20-21) 1 and domestic inflows (amounting to $25 billion over FY20- 21) 2 . The sustained vigour of this bull run has attracted millions of new investors into the Indian stock market – as per SEBI, 14.2 million new investors have entered the stock market over the past 12 months 3 . In fact, prior to COVID’s onset in March 2020, there were about 11 million active investors in India; over the past 18 months, this number has more than doubled to about 25 million active investors.

This bull run is not a flash in the pan. Over the past decade, the Nifty 50 Total Return Index (TRI) has compounded at 11 per cent per annum 4 and created $1 trillion of wealth. The stock market has, therefore, become a potent source of sustainable wealth creation in India. It stands to reason, therefore, that if the wealth created by the stock market spreads across the country, it gives free-market reforms a degree of mass legitimacy that it has hitherto lacked in India. Furthermore, in a country where the RBI says a mere 5 per cent of household wealth is in the form of financial assets, the stock market can potentially drive financialisation of wealth 5.

However, there is good reason to believe that this is NOT happening. In other words, the beneficiaries of the rise in the Indian stock market are a privileged minority of Indian investors. Data from AMFI, the mutual fund trade body, shows that 84 per cent of mutual fund investors (by value of assets) come from the 30 largest cities in India 6 .