‘Meaningful’ correction in stock market likely this year: Economic Survey

Elevated valuations and optimistic market sentiments in the US have raised the likelihood of a meaningful market correction in 2025, stated the Economic Survey 2024-25.

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“Should such a correction occur, it could have a cascading effect on India, especially given the increased participation of young and relatively new retail investors,” it added.

According to the survey, many of the new investors, who have entered the market post-pandemic, have never witnessed a significant and prolonged market correction. Hence, if one were to occur, its impact on sentiment and spending may be non-trivial.

The survey further pointed out that retail participation in India was at a record high. Indian equity markets have also had a steady run since the onset of the pandemic, driven by factors that extend beyond global influences.

One such notable factor has been a surge in retail participation over the last five years, both in terms of investor numbers and trading activity. The unique investor base at the National Stock Exchange (NSE) surpassed the 10-crore mark in August 2024, tripling in the last four years. It stood at 10.9 crore as of December 26, 2024.

Besides, in the last five years (2020-24), individuals have invested a net amount of Rs 4.4 lakh crore in the NSE’s cash market segment, with net inflows in 2024 (Jan-Nov’24) surging to a record high of Rs 1.5 lakh crore. This, along with strong indirect participation via mutual funds, has more than made up for volatile FPI (Foreign Portfolio Investment) outflows over the last five years.

Notably, direct and indirect (through mutual funds) ownership of individual investors in the NSE-listed companies stood at 17.6 per cent as on September 2024, which is now on a par with FPIs. This gap was as high as 7.1 percentage points in FY21.

The survey suggested that apart from active monitoring of the banking system, there was also a need to be cautious regarding developments in the Indian and global stock markets.