Savings and investment are two key macro variables which play a significant role in economic growth. Global emerging economies are experiencing record savings at a time when the developed world has been witnessing a decline in gross domestic saving rates.
Needless to say over here, that the best way to streamline the savings is through long-term investments in the equity markets by funding the corporate growth story. Over the past decade, India’s GDP has almost trebled from $414 billion in 2001 to $1.3 trillion in 2010.
This growth in the size of the country’s economy has been more than complimented by a dramatic 8-fold surge in the market capitalization of the Indian companies from $165 billion in 2001 to $1.3 trillion in 2010. However, it does not mean that this manifold rise in the equity markets and its turnover has been consistent with the increase in the market development and penetration.
Indian Equity Investors Survey 2010 released by MCX Stock Exchange offers some statistical insights on equity markets, stock exchanges, investor distribution patterns and various other facets of the Indian equity markets. Here are some important findings:
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NSE tops the List of Turnover across Stock Exchanges
The total number of active regional stock exchanges across India has come down from 16 at the start of the decade to 4 in 2008-09, including 2 national exchanges. Moreover, National Stock Exchange’s share of total turnover across stock exchanges has surged dramatically from 61.53% in 2001-02 to 92.52% in 2008-09.
Apart from NSE and BSE, the only two stock exchanges that are active are Calcutta Stock Exchange and Uttar Pradesh Exchange as per 2008-09 data.
Mumbai Accounts for More than Half the Turnover
Almost 80% of the NSE’s turnover in India continues to come from the top 5 cities of Mumbai, Delhi, Kolkata, Ahmedabad and Chennai as on 2008-09. In fact, the financial capital of India – Mumbai – accounts for more than half the total NSE turnover at 55%; beating Delhi, the second largest turnover roller with a market share of 14.97%, by a huge margin.
This is an indication as to how geographically concentrated is the investor community situated in the major canters’ of the country; thus providing ample scope for market penetration in rural and town areas.
Low Direct Participation in the Equity Markets
Despite the Indian economy growing at a scorching pace of 8.5% of the GDP and the global funds increasingly eyeing the structural story of India; the direct participation of the retail investors in India’s equity markets is only 1.4% of the population – pointing towards woefully low financial inclusion in the huge domestic growth story.
Other emerging economies such as China and South Korea boast of a higher direct participation to the extent of 9.4% and 7.4% from the retail public in their respective stock markets.
Top 10 Companies Rule the roost on the Bourses
Almost 29% of the exchange volumes in 2009 were concentrated in the top 10 companies of India. In most other major economies like China, Taiwan, Japan and Korea the same stood below 20% for top 10 companies in their respective countries.
Thus, there is still little room for the lagging Indian companies to grow at a higher speed and, consequently, notch higher turnover on the bourses in a bid to facilitate higher inclusiveness in terms of exchange turnover, away from being dominated by the top 10 companies.
Financial Inclusion in Telecom and Insurance
The telecom industry has been the biggest revolutionary story in India and needs no introduction on this business blog. The sector has passed through the phase of high growth and has achieved strong financial inclusion on the back of highly-competitive low tariff structures ensuring deeper penetration within the2 heart of rural India.
Further, the survey also points out that apart from the telecom industry, even the Life Insurance sector has achieved inclusive growth within the country by employing increasing number of agents which has gone up from 1 lakh in 2001 to about 3 million in 2009.
So, can India growth story move forward to achieve higher inclusiveness in various industries?