 "1% rise in m-cap leads to 0.6% rise in GDP growth rate: SBI Eco Research")
A higher market capitalisation signals a robust economy and reflects increased investor confidence, which in turn drives overall economic growth, a report by SBI Economic Research Department said, while claiming that a one per cent rise in market capitalisation leads to a 0.6 per cent rise in gross domestic product (GDP) growth rate.
“The impulse response shows that 1 standard deviation shock in market capitalisation has a positive impact on the real economy with the impact drying out after three time periods,” the report said. It also noted that Granger causality analysis reveals that growth in market capitalisation Granger-causes growth in GDP, while the reverse -- causality from GDP to market capitalisation -- does not hold.
Meanwhile, the report highlighted that in the last ten years, funds mobilised by Indian companies from capital markets has increased more than ten-fold, from Rs 12,068 crore in financial year 2014 (FY14) to Rs 1.21 trillion crore in FY25 (till October).
Also, the savings of households in “shares and debentures” has increased to 1 per cent of GDP in FY24, from 0.2 per cent in FY14 and the share in household financial savings has increased from 1 per cent to 5 per cent, which indicates that the households are now increasingly contributing to the capital needs of the country.
Meanwhile, the share of net financial savings in total household savings has increased from 36 per cent in FY14 to 52 per cent in FY21, however during FY22 and FY23, the share has decelerated. In FY24 trends reveal that the share of physical savings has again started to decline.
According to the report, among financial savings, the share of bank deposits/currency is declining as new avenues of investment are emerging (like mutual funds, etc.).
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The report also adds that since 2021, on an average around 30 million new demat accounts were added every year indicating increasing prevalence of using the capital market as a channel of financialisation of savings. This year, the number may cross the 40 million mark.
“Owing to this, total demat accounts in the country crossed 150 million (of which ~92 million are unique investors on NSE) in FY24 as compared to a paltry 22 million in FY14,” the report said.