July 21, 2024

The India Investment Flywheel – Why the retail investor is going to drive the country’s growth story


There’s a paradigm shift underway in the Indian economy and it is powered by the aam aadmi: Retail investors are taking over equity markets, building wealth for themselves and the country. This is the beginning of an ‘India Investment Flywheel’ that is just starting to turn.

The India Investment Flywheel

Imagine if the trillions of rupees in household savings that is locked up mostly in physical assets could be used to drive the economy forward. Indians investing in Indian companies will mean that the companies have more domestic capital available to fuel their growth. This growth in the economy and corporate India will accrue back to the investor and reflect in the growth of personal wealth of the average Indian. This can be the ultimate realisation of our honourable Prime Minister’s vision of Aatmanirbhar Bharat. And we are well underway on this journey.

As per RBI data, Indian families have shown a 2.5x jump in mutual fund investments in FY22 vs FY21. Over 10 million new investors started an SIP and have invested a total of ₹1.2 trillion in FY22. Since March 2022, the US Fed has hiked rates by 4.25%. With the rupee weakening, FIIs (foreign institutional investors) have pulled out from emerging markets like India. FIIs have been net sellers for 9 out of 11 months this year. They have pulled out about ₹2.7 lakh crore. But, Indian markets have stayed resilient. The Nifty50 has gained 7.5% so far this year. And the retail investor (along with domestic institutions) has played a big role.

Retail shareholding in Indian companies clocked a near 15-year high in June 2022, according to data from the NSE. Post-rate hike, retail shareholding still makes up around 9% in both the Nifty 50 and Nifty 500 Index. And this money invested in equity has the potential to produce goods and services, add to GDP (gross domestic product) and create jobs. This is why one will often find that the growth trajectory of a benchmark index (like the Nifty) mirrors the growth of the country’s economy.

What is enabling this flywheel? The magic recipe is the combination of the following: Increased reach through technology, Mass-scale Financial literacy, and a Customer-first government & regulatory environment.

Increased reach through technology

Tech-first and mobile-first platforms like Upstox made stock-buying as seamless and intuitive as shopping online. Quick and paperless onboarding, UPI based fund transfers, a stable and scalable product have enabled equity participation for every Indian.

More Tier2 & Tier3 customers are choosing to participate in the capital market and in the India growth story. For example, more than 80% of Upstox’s customers are from these non-metro, non-Tier 1 towns. Not only that, most of them are first time investors. This shows the latent demand for accessible and affordable investment opportunities. From Mumbai to Manipur, Bengaluru to Bareilly, people have begun investing in the markets, in their future, and in the economy.

Mass-scale Financial literacy

The large-scale financial literacy / awareness programs from investment platforms (like UpLearn from Upstox), the exchange (NSE), governing bodies such as AMFI and ‘finfluencers’ (financial influencers on platforms like YouTube and Instagram) have kindled a mass-scale customer interest in learning about investing and trading.

College students and young employees are now thinking about ‘starting early’ in their investing journey. Access to good quality investment information is now breaking barriers and fears related to participating in the stock market.

Customer-first government & regulatory environment

In fintech, the most critical parts of the ecosystem are the Government and the Regulators. A transparent, robust and forward looking regulatory framework and Government-led innovation has enabled this strong momentum.

Visionary initiatives like Aadhar, eKYC, eSign, UPI, Digilocker, and online PAN verification have set the stage and built the ‘financial superhighway’ for the success of the fintech ecosystem. These platforms are becoming playbooks for other countries across the world.

Our regulator SEBI is leading the way in safeguarding the customer and reducing risk. T+1 settlement, Demat accounts across all brokers, guardrails on margin lending, strict protections on user’s transaction data etc are all global-first pioneering innovations coming out of India.

The Global  Bright Spot – India

India is already seen as the global hub for fintech innovation. India’s GDP is projected to grow at 6.8% (more than double of US & China); perhaps, why, the IMF has called India a ‘bright spot’. Couple that with the government’s push to make the country a USD 5 trillion economy by 2026-27 and you can’t but agree, this is an economy you should be investing in.

This is the time to ‘go long’ on India.

By Ravi Kumar, Co-Founder and CEO, Upstox