Market Cap Rise Boosts GDP Growth, SBI Research Shows

The State Bank of India (SBI) Research has highlighted a positive correlation between market capitalisation and GDP growth. According to the report, a 1% rise in market capitalisation leads to a 0.06% increase in GDP growth. This trend underscores the impact of financialisation of savings on the real economy.

Since 2021, around 3 crore demat accounts have opened annually, with nearly 25% of investors being women. This fiscal year, the number of demat additions may cross the 4 crore mark. Over 80% of adults in India now have a formal financial account, compared to around 50% in 2011.

The report shows that the share of bank deposits in financial savings is declining, while investments in Ulips, mutual funds, PPF, and provident funds are rising. The booming equity market rally since the pandemic has augmented the real economy.

India’s savings rate as a percentage of GDP stands at 30.2% for FY24, higher than the global average of 28.2%. States like Delhi, Maharashtra, and Tamil Nadu have shown higher female representation in registered investors compared to the national average.

The savings of households in shares and debentures have increased to around 1% of GDP in FY24, up from 0.2% in FY14. This indicates that Indian households are increasingly funding the capital requirements of listed corporates.

The report also notes that funds raised by Indian companies through capital markets have increased more than tenfold from Rs 12,068 crore in FY14 to Rs 1.21 lakh crore in FY25 (till October). The average trade size in the equity cash segment has increased from Rs 19,460 in FY14 to Rs 30,742 in FY25.

Overall, the report highlights the growing prominence of capital markets in financialising household savings and driving economic growth.