The long-held belief that Indian households are conservative in their exposure to the capital markets is being challenged, according to a report from Motilal Oswal Financial Services. The report, which replicates the Reserve Bank of India’s (RBI) quarterly estimates of household financial balance sheets, highlights a growing participation of the household sector in the equity market, particularly since the onset of the COVID-19 pandemic.
As of the first quarter of FY25, Indian households, including individuals and non-profit institutions, directly owned 21.5% of the country’s listed equity market. This share has remained stable at around 21-22% since 2021, following a period of gradual increases from 16-17% between 2011 and 2016. The total market value of household holdings surged from Rs 60 trillion in 1QFY24 to Rs 95 trillion in 1QFY25, driven by a 50% year-on-year jump in India’s equity market capitalization to Rs 441 trillion by June 2024.
The comparison
While the 21-22% household share in listed equities may seem modest, it surpasses the 11-18% range seen in major economies such as Germany, Canada, and Japan, though it remains lower than the 40% share seen in the United States. Direct exposure to equities is only part of the picture, with household investment in mutual funds playing a significant role. As of June 2024, Indian households accounted for 63% of the mutual fund industry’s total assets under management (AUM), which reached Rs 61.2 trillion.
Combining both direct and mutual fund investments, the household sector’s total exposure to equities and investment funds amounted to INR134 trillion, or 44% of India’s GDP in 1QFY25. This is comparable to levels seen in advanced economies, though still significantly lower than the over 100% of GDP observed in Canada and 161% in the US.
Furthermore, the share of equities and investment funds in Indian households’ gross financial assets rose to 28% in 1QFY25, up from 17% at the end of 2019, indicating a notable shift toward equities. This share, however, remains lower than the 43% seen in the U.S. and 33% in Canada but is higher than other developed economies like the UK and Japan.
Despite the rising equity exposure, the report cautions against drawing conclusions about widespread financial inclusivity. The concentration of financial wealth among the upper echelon of households, along with declining household savings rates, indicates the need for more granular data and further research into household financial behavior. Nonetheless, the report signals a shift away from the narrative of Indian households being risk-averse in capital markets.
