Economic Survey 2024: CEA Says Retail Investment Productivity Must Be Ensured Amid Derivative Trading Boom

Amid a boom in derivate trading by retail investors, especially expiration-day trading, India's chief economic advisor warned that all stakeholders must ensure savings of retail investors are made productive.

"It is not just in the national interest. It is an act of self-interest, too," V Anantha Nageswaran said in the economic survey released on Monday. Derivatives trading holds potential for outsized gains. This is likely driving active retail participation in derivatives trading, the survey said.

All stakeholders must ensure that India's capital markets are meant to direct the savings of retail investors to their most productive investments, the CEA said.

For most part, derivatives trading loses money for the global investors, he warned. Raising investor awareness and continuous financial education is essential to warn them of the low or negative expected returns from derivatives trading, the note said.

Once investors see significant loss, they may not return to capital markets long, the report said. "That is a loss to them and the economy."

Most of the new retail investors are likely young and may have a higher risk appetite, the note said. This is reflected in the interest that retail investors have shown in derivatives trading, "especially expiration-day trading", Nageswaran said.

The number of unique tax IDs registered on the National Stock Exchange rose from 2.7 crore in financial year 2019 to 9.2 crore in financial year 2024, the CEA said. The enhanced participation of retail investors in the Indian capital market is hugely welcome and lends stability to the capital market, Nageswaran said.

The financialisation of economies has not ended well, even for advanced economies and therefor, CEA said that "India needs to have an orderly and gradual evolution of the financial market."