Savings flowing into equity: Not a pandemic blip but a basic shift
Over the past four years, we have been amazed by the notable increase in the number of demat accounts, SIP investment flows, mutual fund (MF) investor count and similar data. The number of unique investors in Indian equity markets has nearly tripled since 2020 to 90 million.
Equally impressive, the number of investors in mutual funds (unique PAN holders) has more than doubled from 21 million as of December 2020 to 45 million as of April 2024. We are witnessing an extension of the financialization of savings—what I call as the ‘equitization of investments.’ This trend, which refers to the increasing preference for equity investments over traditional savings, is poised to reshape the financial landscape of the country.
This shift is being fuelled by three interconnected mega trends: An expansion of the middle class, rising incomes within this demographic and the youthful profile of India’s population. Trust and financial literacy are reinforcing this trend, although the inherent volatility of equity markets will lead to fluctuations in this equitization trend.
Growth of the middle class: As per a report by People’s Research on India’s Consumer Economy (PRICE), India’s middle class is set to nearly double its share of total population by 2047 from an estimated 31% of our headcount in 2020-21 to a projected 61%. In absolute terms, the class is expected to grow from 432 million individuals in 2020-21 to about 715 million by 2031 and over a billion by 2047.
Our fast-rising middle class is a critical driver of equitization, given its high capacity for investing assured by relative financial stability. Rising income levels: As per a report by HR consulting firm AON, annual salary increases in India have ranged between 9.3% and
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