Indian Households' Exposure To Equity Rises To 31%; Emkay Expects Trend To Continue

Indian households are increasingly turning to equities for their long-term savings, with the share of equities in household financial savings nearly doubling from around 17% in fiscal 2016 to approximately 31% by the September quarter of fiscal 2025, according to an analysis by Emkay Global Financial Services Ltd.

The upward trend is expected to continue for the next 8-10 years, the brokerage said in a report on Monday.

This shift towards equities from traditional savings instruments such as life insurance will be driven by factors like lower fixed-income yields, the absence of social security schemes, and the rise of digital investment platforms, it said.

The report also highlights the strong performance of Indian markets, which is reflected in continued flow of domestic investments into equities, with mutual funds leading the charge.

"Over the years, participation in direct equities and mutual funds has increased, largely at the expense of bank deposits and insurance," said Emkay.

The brokerage also said that between fiscal 2016 and fiscal 2024, domestic equity inflows have risen at a compounded annual growth rate of 22%. This surge in domestic participation is gradually reducing India’s dependence on foreign portfolio investments, making the market more resilient to FPI sell-offs.

Since March 2019, the share of FPIs in the BSE 500 index has declined by around 270 basis points, while domestic institutional investors, including mutual funds, have raised their share by 400 bps, the report said.

The report also noted that active demat account and mutual fund folios have seen a "robust" growth with CAGR of 39% and 19% between fiscals 2016 and 2024, respectively. However, there has been a decline in average retail holding per demat account and this indicates reduced concentration of equity assets.

The market participation is expanding with, 27% of the individual equity investments now operating from Tier 2 and Tier 3 cities, the brokerage highlighted.

Notably, mutual funds are increasingly tilted towards small and mid-cap stocks, taking more active sectoral bets compared to FPIs, which have largely stuck to the benchmark.

While the share of equities in household savings is expected to rise steadily until fiscal 2030, short-term fluctuations are possible, especially if a sustained bear market occurs, Emkay analysts said.

The overall trajectory, however, remains positive, supported by demographic trends and an evolving financial landscape, they added.

As investors seek more diversified options, Emkay said that the demand for hybrid financial products, such as REITs and InvITs will intensify. In the long term, a more balanced asset mix will emerge, although equities are expected to remain central to household savings, the report underlined.