A report by the SBI Economic Research Department said that an increase in market capitalisation strengthens the economy and boosts investor confidence, thereby boosting overall economic growth. Also, the report claimed that a one per cent increase in market capitalisation leads to a 0.6 per cent increase in gross domestic product (GDP) growth rate.
“Impulse response suggests that a 1 standard deviation shock in market capitalisation has a positive impact on the real economy, with the effect dissipating after three time periods,” the report said. It also mentioned that Granger causality analysis suggests that an increase in market capitalisation Granger-causes an increase in GDP, while the reverse – causality from GDP to market capitalisation – does not apply.
Meanwhile, the report highlights that over the past ten years, funds raised by Indian companies from the capital markets have increased more than tenfold, from Rs 12,068 crore in financial year 2014 (FY14) to Rs 1.21 trillion crore in FY25 (till October).
Also, households’ savings in “shares and debentures” have increased from 0.2 per cent in FY14 to 1 per cent of GDP in FY24 and the share in household financial savings has increased from 1 per cent to 5 per cent, indicating that households are now increasingly contributing to the country’s capital needs.
Meanwhile, the share of net financial savings in total household savings has increased from 36 per cent in FY14 to 52 per cent in FY21, although the share has declined during FY22 and FY23. Trends in FY24 suggest that the share of physical savings has started declining again. According to the report, the share of bank deposits/currency in financial savings is declining as new avenues of investment are emerging (such as mutual funds, etc.).
The report also states that since 2021, an average of about 30 million new demat accounts were added every year, indicating an increasing prevalence of using capital markets as a channel of financialisation of savings. This number may cross the 40 million mark this year. “Due to this, total demat accounts in the country crossed 150 million (of which ~92 million are unique investors on NSE) in FY24, from a mere 22 million in FY14,” the report said.
