Finance and corporate affairs minister Nirmala Sitharaman on Tuesday said the fast-expanding group of retail investors in the country’s stock market is acting as a ‘shock absorber’ amid a flight of foreign portfolio investors (FPIs).
Speaking at an event of the corporate affairs ministry as part of the Azadi ka Amrit Mahotsav, the finance minister said: “Retail investors have come in a big way that they seem to act like shock absorbers… if FPIs went away, our markets did not really have to show their ups and downs in a very distinct way because small investors in the country have come in a big way.”
FPI exposure to Indian equities has witnessed a persistent drop in recent months. The outflow in May hit $5.7 billion, the highest since March 2020.
Retail participation in the stock markets has grown at a fast pace, especially in the wake of the Covid outbreak, softening the blow of the FPI outflows. From just 4 lakh in FY20, the number of new demat accounts added each month shot up to 12 lakh in FY21 and to 26 lakh in FY22.
Sitharaman also asked regulators to remain ahead of the curve in understanding digitisation to ensure that there is no misuse of the digital ecosystem. “You need to work with experts to strengthen and make robust your firewall mechanism, or else the digitisation which made our life easy, can itself become the biggest handicap if we are not able to prevent any unforeseen disaster.”
Digitisation will have an impact on markets and obviously watchdogs like the Competition Commission of India (CCI), National Financial Reporting Authority (NFRA) and others have to be ahead of the curve to ensure regulations don’t fall short, she said. The minister said, the CCI has been “making its presence felt but not trying to make any obstruction”. Corporate affairs secretary Rajesh Verma said the ministry will bring in a number of tools in the coming months, including those for compliance management. He stressed the need for technology-driven platforms to facilitate ease of doing business.