In a real sense, the stock market is a reflection of the economy and a function of supply and demand.
Indian economy is one of the fastest-growing economies in the world and is expected to touch a 5 trillion dollar mark by 2025 to become the third-largest economy in the world. India has a very young and aspiring population with rising average income and has shown an increase in its growth rates in every decade since independence. Developed countries like Japan or the USA, have an older population and most of the market is saturated and less scope for development.
We have a habit of saving and investment unlike the US, which is based on debt. Government and citizens have a lower level of debt compared to other economies. India's GDP is currently estimated at around USD 2.72 trillion and to achieve 5 trillion economies as a plan of the current government, India needed to grow on average at 9 to 10 percent per year in real terms 2020 to 2024 to achieve the target.
Here it becomes important to develop important things like corporate policies, FDI inflows, job creation, infrastructure, etc. The government is piloting the economy frontward by changing so many policies. Demonetization, IBC, and other cleanup reforms, other constructive reforms, tax cuts, privatization, were some of the important and strict measures, which could be a hindrance, in the short, term but will surely be a great success in the future.
A stock exchange represents the performance of the companies listed on the stock exchange cumulatively, thus giving the investor an idea of the financial growth of the region. Microeconomic and macroeconomic factors, the business environment, the legal structure, and tax policies applicable to each economy affect stock market movements.
Sensex was started in 1979, from that day until now it is at around 40000 levels similarly Nifty was established in 1996 and is at 11000 levels, so if someone had invested in nifty or Sensex at an initial level he would have generated fantastic returns by now. However, out of a population of 1.3 billion, there are around two crores investors in the equity market.
The good news is the no. of Demat accounts has crossed four crores that is an essential part of investing. The number of active Demat accounts opened CDSL has reached 2.5 crores. From 2015, Central Depository Services Ltd (CDSL) alone has added 1.5 crore Demat accounts. The main reason for people not participating in the economy is awareness and knowledge of financial products and markets. The low-level participation from the female side in the financial market is really a serious issue.
Fear and nervousness factor is there in short term due to the slow economic engine and COVID situation, however, for the longer-term; it is likely to rocket in the future. The fast recovery in the economy after lockdown will depend on government policies and reforms. If the government brings more reforms, it is likely to help the equity market. Demand creation is more important, stimulus package was a relief for many sectors like MSMEs.
It becomes important for retail investors to look market from a different level, know their risk appetite and investment goals, and set a disciplined approach. The magic mantra is value investing. If you plant a mango tree, you should wait for 10-12 years to reap the fruit. Similarly, Asset allocation, diversification, regular investment are some of the important factors one should know before investing.
Securities and Exchange Board of India (SEBI) have been taking necessary steps to protect the investors' interest and have brought measures to promote financial literacy. Regulatory bodies like SEBI, governments, and RBI has taken many measures to cater to demand and transparency in the market. Due to global situations, China-US trade war, many companies are planning to shift their base to India. After globalization the world seems to be borderless, many trade barriers have been removed, and people have more faith now, idea of capitalism facilitates the maximization of wealth.
Investors globally and at the domestic level also are looking forward to investing in the Indian market. The market always looks at the future. In the long term, economic fundamentals propel the market in the long-term. Thus the Indian stock market is about to perform well in near future.
Some of the important facts for the development of the stock market could be the following:
- The literacy rate has spurred up from 47 % to 74 % (2001 to present) and now people are more aware of the market.
- Development in science and technology has helped to cut the barrier, now anyone can operate his account from anywhere.
- India is one of the largest demanding markets and active participation by foreign players has created a demand.
- The developed market is already saturated and the rate of return is low, so investors are looking for investment in new markets, which is developing.
- Stable government, fair transparent policies are important factors that decide the fate of the stock market.
- No. of first-time investors since 2019 is an all-time high
Kundan Kishore
Curator of A Complete Course On Indian Stock Market
