Finance Minister Nirmala Sitharaman on Tuesday cautioned against an ‘unchecked explosion’ in retail futures & option (F&O) trading, as it can pose challenges to the markets and household finances. Speaking at an event at the BSE, the Finance Minister said the prerequisite for a vibrant and deep financial market is a stable and majority government. Sitharaman said she was confident that Prime Minister Narendra Modi will form the government for the third term, in which India will become the third largest economy. “Any unchecked explosion in retail trading of futures and options (F&O) can create future challenges, not just for the markets, but for the investor sentiments and also for household finances,” Sitharaman said. “Household finances have made a generational shift. We want to safeguard that and ensure that it is not going to be shattered,” she said. Trading in F&O has been a concern as many retail investors have lost their hard-earned money. Last year, a study by market regulator Securities and Exchange Board of India (Sebi) showed that nearly 89 per cent of the individual traders — 9 out of 10 individual traders — in the equity F&O segment incurred losses with an average loss of Rs 1.1 lakh during FY22. Further, 90 per cent of the active traders incurred average losses of Rs 1.25 lakh during the same period, the study said. In November last year, Sebi Chairperson Madhabi Puri Buch said that there is a 90 per cent chance that investors lose money in the F&O segment, and advised them to go for long-term investment for wealth creation and to get a real rate of returns. She asked BSE and NSE to ensure market stability and mitigate systemic risks by leveraging technology to improve efficiency, transparency and security. Sitharaman said the household savings are today not just going to post offices or to fixed deposits in banks, but are going to the stock market, which is reflected in the form of a rise in retail demat accounts opened in the past years. In 2013, there were 2 crore retail demat accounts, which has increased to 15.1 crore, with 3.6 crore retail demat accounts getting added in the last one year. “There is such a dynamic change happening in the way in which savings pool of families is not just looking at post office savings or fixed deposits in banks or in some chit funds, they are actively coming into (the stock market through) opening of demat accounts, believing in the performance of the stock market,” the Finance Minister said. She said the confidence of retail investors in the stock market is the result of the increase in the compliance level by listed companies in the last several decades, which has brought in transparency, efficiency and improved corporate governance. According to Sitharaman, persistent flows of domestic savings into the stock market have become the counterbalancing force when foreign portfolio investors (FPIs) come and go. “There may not be actually any fluctuation despite the whimsical FPI movements. Indian-owned savings, which are coming from small retail investors, is providing the shock absorber,” the Finance Minister said. She said the stability of government, stability of policy, particularly of taxation, predictability, and above all the soft touch regulatory framework are some of the factors that can make the markets efficient and they can function without volatility. “For a stable, vibrant and deep Indian financial market, the prerequisite, as I would put before you today, is to have a stable, majority government and a government with visionary leadership, and that is what the BJP and the NDA coalition…” she said. “… Prime Minister Modi’s third term … one more very good stable, high governance, good governance, more governance, less government, is what we are looking forward to and we are confident that Prime Minister Modi will be forming his third term where India will become the third largest economy,” Sitharaman said. She said that the government’s strategy is to have an investment-led growth, combined with an all-inclusive growth, having an element of welfare, more from the point of view of empowering the poor, not so much from the point of view of entitlement for any section.
