AA Edit | Tighten vigil on stock exchanges

The cumulative market capitalisation of all companies listed on Indian stock exchanges has crossed Rs 400 lakh crores ($4.3 trillion) on Monday. It is over Rs 100 lakh crores more than the country’s gross domestic product (GDP). According to second advance estimates of the Union ministry of statistics and programme implementation, Indian GDP is expected to be Rs 293 lakh crores at the end of the financial year 2023-24.

It is interesting to note that combined wealth of investors, who hold stake in Indian listed companies, was Rs 100 lakh crores ($1.66 trillion) in March 2014. Their wealth swelled by Rs 100 lakh crores to Rs 200 lakh crores ($2.70 trillion) in seven years in February 2021. The investor's wealth increased by another Rs 100 crores in two years and four months to Rs 300 lakh crores ($3.66 trillion) in July 2023. Another Rs 100 lakh crores was added to their wealth in just nine months to Rs 400 lakh crores ($4.3 trillion). 

While investors are bullish about the prospects of the Indian economy, which translated into a four-fold growth in wealth in 10 years, the country’s GDP increased from Rs 106 lakh crores in March 2014 to Rs 172 lakh crores (in constant prices) in March 2024, showing a real adjusted to inflation growth of Rs 66 lakh crores in 10 years. 

Similarly, foreign direct investment in India has not been encouraging enough when it is compared to other developing countries. FDI in 2014 was 1.7 per cent of GDP, 2015 2.1 per cent, 2016 1.9 per cent, 2017 1.5 per cent, 2018 1.6 per cent, 2019 1.8 per cent, 2020 2.4 per cent (the third highest ever), 2021 1.4 per cent and 2022 1.5 per cent. Other metrics like salary and wages, too, have not grown commensurate to the wealth creation in the stock exchanges. 

While it is true that stock market value is a factor of the economy’s future prospects, stock exchanges cannot present a true picture of the economy. Several times in the past, stocks have been manipulated by big stock traders. A four-fold rise in value is extremely enticing to gullible Indian youth, who could be easy targets for manipulative traders. Market regulator Sebi, therefore, should tighten its oversight on stock exchanges.