Economic Survey 2025: Prolonged Market Correction Likely To Affect Young Retail Investors

A meaningful market correction is likely in domestic markets, due to the elevated valuations and optimistic market sentiments in the US, as per the Economic Survey for 2024-2025.

If such a correction were to occur, it would have a plunging effect on India, the document authored by Chief Economic Advisor V Anantha Nageshwaran pointed out. This is also because of the increased participation of new and young retail investors in the Indian market.

Many of these investors, who entered the market post-pandemic, have never witnessed a significant and prolonged market correction. If one were to occur, its impact on sentiment and spending may be "non-trivial", the survey document read.

The report substantiated its claims on the basis on historical data. It mentioned that the Nifty 50 has usually seen correlation with S&P 500. An analysis of daily index returns between 2000 to 2024 reveals that in 22 instances when the S&P 500 corrected by more than 10%, the Nifty 50 posted a negative return in all but one case, averaging a 10.7% decline.

On the other hand, during 51 instances when the Nifty 50 experienced a correction of over 10%, the S&P 500 exhibited positive returns in 13 instances, with an average negative return of 5.5%.

This underscores the asymmetric relationship between the two markets, highlighting a more pronounced impact of the movement in US markets on Indian equities than the other way around, the report read.

Even as the resilience demonstrated by the Indian market, supported by growing retail participation, is promising, the risks associated with a potential US market correction cannot be overlooked, given historical trends, the Economic Survey said.

Meanwhile, the report also highlighted the growing numbers of new retail investors in the country, solidifying its observations using NSE data. The report mentioned that ever since the onset of the global pandemic, Indian equity markets remained steady and saw a surge in retail participation over the last five year.

This growth is reflected in both the number of investors in trading activity.

The unique investor base at the National Stock Exchange (NSE) surpassed the 10-crore mark in August 2024, tripling in the last four years, and currently stands at 10.9 crore.