Economic Impact of Market Correction on Indian Retail Investors

MUMBAI (Reuters) – A sharp correction in the equity markets could hurt sentiment and spending by India’s retail investors, the government’s Economic Survey said on Friday.

The survey, presented a day ahead of the annual budget, details the state of the economy while flagging longer-term economic and policy issues.

Retail investors’ participation in India’s equity markets is at a record high, with many entering the market post-COVID-19 without having experienced a significant and prolonged market correction.

> “Hence, if one were to occur, its impact on sentiment and spending may be non-trivial,” the survey stated.

India’s equity benchmarks have slumped after reaching record highs in September last year, with several key indexes entering a technical correction toward the end of 2024.

The number of individuals who traded at least once a month in the National Stock Exchange’s cash market increased from 3.2 million in January 2020 to 14 million in November 2024.

In the last five years, individual investors have invested 4.4 trillion rupees ($50.79 billion) in the cash market, with additional investments also coming in via mutual funds.

Greater participation in equities, coupled with strong gains generated by Indian equities, has increased household wealth by 40 trillion rupees over the last five years, according to NSE data.

However, Indian equities have become increasingly correlated with the U.S. markets, which could pose a risk to the outlook in 2025. The survey noted, “Elevated valuations and optimistic market sentiments in the U.S. raise the likelihood of a meaningful market correction in 2025,” warning that such a correction could have a cascading effect on India due to the increased participation of young, relatively new retail investors.

($1 = 86.6300 Indian rupees)