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Surprise shift! Why PPF, SCSS, FD, NSC, SSY investors are turning to stock markets amid pandemic

Investment trend in India 2021: Individual investors taking more interest in the stock markets is an interesting trend. In the last 1 year, a significant increase in retail participation in the Indian markets, aided by huge market rally, has been witnessed.

Surprise shift! Why PPF, SCSS, FD, NSC, SSY investors are turning to stock markets amid pandemic
The increase in individual's interest in markets may help financing India's infrastructural requirements. Representative image

Amid the Covid-19 pandemic, more individual investors are turning to stock markets for better returns on their investments. The significant tilt of retail investors towards stock markets is aided by at least three reasons. According to SBI Research, these are: a) Declining interest rates of Fixed Deposits (FD) and other small savings schemes like Public Provident Fund, Sukanya Samriddhi Yojana (SSY), Senior Citizens Savings Scheme (SCSS), National Savings Certificate (NSC) etc. b) Increased global liquidity and c) People spending more time in their homes during lockdowns.

“Declining saving avenues amidst the low-interest rate regime has led to greater interest by individuals in the stock market. With key repo rate at 4%, the FD rates vary from 2.9% to 5.4 for different tenures (SBI FD rate). Even the current small savings rate are low, varying from 7.6% on Sukanya Samriddhi Yojana Account Scheme, 7.4% on Senior Citizen Savings Scheme, 7.1% on Public Provident Fund, and 6.8% on National Savings Certificate,” SBI Research said in its latest Ecowrap report.

“Another reason could be the significant increase in global liquidity. This is reflected in the FII inflows in FY21, with total amounting to $36.18 billion. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for their tilt towards the stock market trading,” the report added.

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Individual investors taking more interest in the stock markets is an interesting trend. In the last 1 year, a significant increase in retail participation in the Indian markets, aided by huge market rally, has been witnessed. As per the report, the number of individual investors in the market has increased by a whopping 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. Moreover, 44.7 lakh retails investors have been added during the two months of this fiscal.

“This higher retail participation in stock markets may become an established norm going forward. This would only imply an even economy agnostic movement of stock markets,” SBI Research said.

The increase in individual’s interest in markets may help financing India’s infrastructural requirements. “Increasing retail participation if it becomes the norm could also enable a larger resource pool for financing India’s infrastructural requirements.”

SBI Research, however, noted that it is yet to be seen if this increasing retail participation is transitory or the beginning of long term behavioural change? “There is also an issue of financial stability which has arisen recently as the stock market has boomed with real economy suffering. Our financial stability index has improved modestly to 116.2 in Apr’21 from 115.4 in Mar’21,” it said.

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