The truth about declining household savings and F&O trading
Economic Survey 2024 makes an interesting observation that the sharp rise in household financial savings during the pandemic has been drawn down subsequently, as in many other economies, and shifted towards physical assets
The main argument against Futures & Options (F&O) trading is that household savings are being diverted from productive capital formation to speculative bets in the stocks and indices option segment. Is this really what is happening in our economy?
Perhaps not entirely. Thats what the experts believe.
Dr Manoranjan Sharma, Chief Economist - Infomerics Ratings says the trading in the F&O segment is just one factor. Perhaps a much more important factor is the influx of money in the stock markets via the SIP route by mutual funds. On an average, SIPs mobilise Rs 25,000 crore every month. Hence an extrapolation over 12 months makes it more than Rs 3 lakh crore. Last month’s SIP mobilisation was even higher at Rs 40,000 crore. "There are also factors like higher returns in other asset classes, such as, gold and real estate and the high rate of inflation," reasons Sharma.
Murthy Nagarajan, Head - Fixed Income, at Tata Asset Management says that the F&O segment, primarily traded by the organised sector benefiting from the formalisation of the economy, accounts for only 2 to 3 percent of the working-age population. "The rest of the population in the informal sector faces increased financial liabilities. Many people lost their jobs or had to take voluntary salary cuts during the Covid period, with some salaries still not restored to their original levels," says Nagarajan,
Not much support from private corporate and public sector
According to available data, the country's gross savings rate or gross domestic savings rate stood at 29.7 per cent of gross national disposable income in 2022-23, with households being the dominant savers with a share of 60.9 per cent of total savings. The other two constituents of gross domestic savings are private corporate and public sector units. So structurally, the savings from private sector and public units is not big for India.
With public sector units currently getting better valuations in the market because of better business prospects, there is a hope of their share improving in the near future. But disinvestments or privatisation also has the effect of neutralising the gains. In case of private sector, they are having the best balance sheet with cash reserves as private capex is not improving in the last few years. If private capex improves, there will be an impact on savings from the private sector corporate.
Comments
Post a Comment