MUMBAI: Flagging the low investor participation in the securities markets, despite a considerable growth in the mcap-GDP ratio to 135 percent now, Sebi chairman Tuhin Kanta Pandey has said though 63 percent of the households are aware of the securities market, only about 9.5 percent of them are investing in the market now, underlining the need for wider market participation, which the regulator wants to double over the next three to five years.
As of end October, there are over 21 crore demat accounts in the country, while the unique investors count much lesser at 13.6 crore. According to brokerages approximately 1 lakh new demat accounts are opened daily. Most of this growth has come after the pandemic. Citing Sebi’s own data, Pandey said while though 63 percent of the households are aware of the securities market, only about 9.5 percent of them are investing in securities market now.
But encouragingly, over a fifth of the households or 22 percent of them are looking at investing in the securities market over the next 12 months, which provides a huge scope for increasing the number of investors in the market. “Sebi’ role over the next three to five years is to double the number of investors in the market” he told a event organised by the industry lobby CII in Mumbai on Monday, expressing the confidence that the capital markets could soon become the preferred destination for household savings, provided the country sustains its economic growth trajectory.
"A significant milestone has already been reached," said Pandey, adding that domestic investors, including households and institutions, now own a larger proportion of listed stocks than foreign investors, whose ownership has fallen to 17 percent now, which a sign of rising market confidence, he added. Deeper participation, he said, will be essential to converting our growing savings pool into long-term capital for businesses, as there are around 135 million distinct market participants.
Stressing on the need to bridge the gap between investor awareness and participation in the securities market, he underlined the need to educate them to ensure informed investments. Speaking about the crucial role the stock markets play in nation building, he said; “The securities market is no longer a passive mirror of the economy. It's an active partner in nation building. It is also no longer a peripheral source of financing. It's now a central driver of our long-term investment cycle”.
The fact that over the past 10 years, capital markets, equity and debt together have facilitated average issuances of roughly Rs 9.5 trillion every year is reflective of the confidence among issuers that securities markets can meet long-term financing needs efficiently, reliably, and at scale, he said.
“The market capitalisation to GDP ratio has also jumped from around 69 percent in FY16 to over 130 percent today. This is a clear sign of an evolving market where productive sectors are increasingly being funded through transparent, fair, and competitive market mechanisms. However, future progression will be contingent on the depth of partnerships between regulators and industry, issuers and investors, urban capital markets and emerging savers in smaller towns,” he said.
On the recent criticism by chief economic adviser V Anantha Nageswaran that IPOs are increasingly being used as exit routes for existing investors rather than for fresh fund-raising, Pandey said Sebi has already strengthened the framework.
Earlier, open interest was used, but now we have introduced the delta metric. With delta, the assessment becomes more accurate. They were also talking about premium versus open interest,” he said. Pointing out that IPOs serve multiple purposes, he said an IPO allows both exit and fundraising. It depends on the specific IPO. Many companies are already well-established by the time they come to the market. When they become mature, it is natural that some investors will choose to exit because a premium has already been created,” Pandey said, adding several companies also launch IPOs to raise new capital for greenfield projects and business expansion.
Stressing that there a different kinds of IPOs,” Pandey emphasised that Sebi’s approach is to allow all types of IPOs. From our perspective, every variety of IPO should exist in the capital markets, and all kinds of possibilities should remain open,” he said.
Addressing the Monday event, Anuradha Thakur, Economic Affairs Secretary, said, over the past few years, the government, along with financial sector regulators, has introduced many regulatory reforms to ease compliance.
"The philosophy behind these fundamental reforms is the desire to ensure that regulatory effectiveness and responsiveness improve, that regulations which are needed remain, and that they become more cost-effective, simple, and easy to comply with. While we have come a long way, the financial sector continues to evolve, and new trends are emerging that require rethinking existing paradigms. This warrants new, innovative approaches going forward; it calls for more collective thinking and stronger partnerships," she said.