The perception that the household sector in India is highly conservative and prefers investments in gold and real estate over capital market exposure may not be true, data show. Households now directly hold a fifth of the listed stocks in value — and more than 30% of the market if mutual fund holdings are also taken into account.
Over the last few years, propelled by strong economic growth, stock markets have given good returns of more than 15%, which has allowed many investors to double or triple their investments in three or four years. Over the last couple of years, equity schemes of mutual funds produced 20-45% returns.
By contrast, fixed deposits in banks offered only 7-8% returns annually which, after adjusting for 5% inflation, produced real returns of only 2-3%.
It has been increasingly obvious to retail investors that the stock market is the place for better returns.
How much of the listed equity market do Indian households own?
The household sector, which includes individuals and nonprofit institutions serving households directly owned 21.5% of India’s listed equity market as of June 2024, which is much higher than developed markets with the exception of the United States. (More on this below.)
Holdings of the household sector surged to Rs 95 lakh crore in June 2024 from Rs 60 lakh crore (20.6% of the equity market) in the same period last year, according to a report by Motilal Oswal Financial Services.
If direct and indirect exposure (mutual fund investments) of the household sector — referred to as equity & investment funds (E&IFs) — are combined, households’ equity ownership amounted to Rs 134 lakh crore ($ 1.6 trillion) or 44% of GDP in the first quarter of FY25, the report said.
This is almost 30.3% of the total market value of listed companies.
How does the situation in India compare with that in other economies?
The household sector owns between 11% and 18% of the listed equity market in major economies other than the US, the Motilal report said. In the United Kingdom, the household sector owns 11.3% of the equity market, in Japan 18.5%, in France 8.9%, and in Canada 16.4%.
The household share is significantly higher in the US, at 40%. In the post-pandemic period, the share of the household sector in the listed equity market has increased in the US, Germany, and India. The share in other economies has been largely stable, with the exception of Canada, where it has declined.
What has been the trajectory of growth of India’s equity market?
India’s equity market capitalisation jumped more than 50% year-on-year to Rs 441 lakh crore as of the quarter ended June 2024. It had risen to more than Rs 461 lakh crore as on October 7, with the Sensex at the 81,000 level. The Sensex has risen 71% from levels of 47,000 four years ago.
Notwithstanding the stable share (with occasional step-ups) of the household sector in listed equities, the impressive surge in equity market capitalisation over the past year has propelled the market value of household gross financial assets (HHGFA).
What is the situation of investments in mutual funds?
Direct exposure to listed equities constitutes only a portion of the total exposure of the household sector.
With investors pumping money into equity schemes of mutual funds, the total size (or assets under management, AUM) of India’s mutual fund industry reached Rs 61.2 lakh crore as of June 2024, up 38% from a year ago.
The household sector (including high net worth individuals and retail) owned about 63% of the MFs AUM, up from 55% in December 2019 and 50% in 2014-15, the Motilal report said.
Within this, equity instruments accounted for about 70%, while non-equity constituted the remaining 30% (almost the same as in December 2019 but much lower than the 50% from a decade ago), the report said. Investors have been putting money in MF schemes month after month.
“Mutual funds also play a very important role, and thus, we combined both direct and indirect exposure (through MFs) to determine the total exposure of the household sector to the securities market,” the report said.
A study by Zerodha Fund House says that the number of new investor folios coming from smaller cities has been rising steadily. The mutual fund industry has added 2.3 crore investor folios between April and August 2024, more than 50% of which have come from smaller cities.
Such trends can foster a culture of saving and investing, and ultimately contributing to long-term industry growth.
Will this trend continue?
With the economy slated to grow by 7.5%, the reform process continuing, inflation remaining under control, and corporates performing well, stock markets are expected to give good returns in the coming years.
This trend may contribute to the growing wealth effect within the household sector.
The inclusion of Indian Government Bonds in indices, which will be spread over 10 months, i.e., till March 31, 2025, is likely to bring nearly $20-25 billion into the country, according to various estimates. Foreign investors, who put in more than Rs 2.34 lakh crore in both equity and debt, are expected to pump in more funds in the coming months.
With the Indian economy slated to grow by 7.5%, the reform process continuing, inflation remaining under control, and corporates performing well, stock markets are expected to give good returns in the coming years. (Via Pixabay) 
Share
