Finance Minister Nirmala Sitharaman on Tuesday highlighted the potential threat posed to household savings by the surge in retail trading in the futures and options (F&O) market. “Any unchecked explosion in retail trading in F&O can create future challenges not just for the markets, but for investor sentiment and also for household finances,” she said at an event at the BSE.
Sitharaman, who is the first government official to red flag the F&O threat, also spoke about the active role of household finances and participation from middle class investors that have played an important role in protecting the market from fluctuations. She said that there was a need to protect the investors and their contributions. “Household finances have made a generational shift, we want to safeguard that, we want to ensure that it is not going to be shattered.”
She also added that the inflows from retail investors was providing cushion to the market from “whimsical” foreign institutional investors (FIIs), thereby reducing fluctuations. “Persistent flow of domestic savings to stock markets has played one very important role. They have become the counter-balancing force when FPIs come and go,” she said.
Since the beginning of the month, FIIs have net sold shares worth nearly Rs 28,800 crore amid volatility in the market due to the ongoing General Elections. Meanwhile, domestic institutional investors have net bought shares worth Rs 26,500 crore, protecting the market from a free fall.
Sitharaman’s statement about F&O comes at a time when the retail participation has risen to dizzying heights. In the past three years, the average daily turnover in the F&O segment has risen from Rs 71 trillion in FY22 to Rs 359 trillion in FY24. And in FY25, the first two months has seen the average daily turnover zooming further to Rs 450 trillion (up to May 13). At the same time, the retail investor’s net turnover in the derivative market has also increased from Rs 48,000 crore to Rs 92,000 crore.
The Securities and Exchange Board of India (Sebi) has been flagging concerns over the surge in retail participation in the F&O segment as well for the past three years. A study by the market regulator last year showed that 9 out of 10 retail investors suffer losses in the equity derivatives market.
Sitharaman also urged stock exchanges to work closely with Sebi to improve investor confidence by ensuring stringent compliances and regulatory standards. “The BSE and the NSE should mitigate systemic risk and ensure market stability,” she said, adding that regulators should proactively consult with the market and stakeholders for further tweaking of regulations.
The FM promised better efficiency, stability and predictability in the market after Prime Minister Narendra Modi returns for a third term. She assured investors of a “soft-touch” regulatory framework, along with more governance and less government.