Any correction in US markets could have a cascading effect on India: Economic Survey

“With the US comprising 75 per cent of the MSCI World Index (as of November 2024), immoderate correction successful its marketplace could person profound ripple effects connected planetary markets, including India, underscoring the request for heightened vigilance,” the Survey said.

The Survey said that presently the US fiscal scenery is characterised by precocious stock market valuations, grounds firm profits and highly optimistic capitalist sentiment. The surge successful US banal marketplace valuations to an unattractive zone, presently astatine their 3rd highest levels arsenic indicated by Shiller’s S&P 500 CAPE ratio (Cyclically Adjusted Price-Earnings Ratio), warrants immoderate caution.

“Elevated valuations and optimistic marketplace sentiments successful the US rise the likelihood of a meaningful marketplace correction successful 2025. Should specified a correction occur, it could person a cascading effect connected India, particularly fixed the accrued information of young, comparatively caller retail investors,” the Survey said.

“Many of these investors that person entered the marketplace post-pandemic person ne'er witnessed a important and prolonged marketplace correction. Hence, if 1 were to occur, its interaction connected sentiment and spending whitethorn beryllium non-trivial,” it said.

Investor information home banal marketplace has jumped from 4.9 crore successful FY20 to 13.2 crore arsenic of December 31, 2024.

Addressing the media aft tabling Economic Survey 2024-25 successful Parliament, Chief Economic Advisor (CEA) V Anantha Nageswaran said planetary banal markets besides person go severely volatile arsenic precocious witnessed.

“…the monolithic maturation successful retail information successful the Indian banal marketplace is decidedly a bully happening but erstwhile the marketplace corrects, it could person implications connected spending intentions and sentiments,” Nageswaran said, adding that the Survey has taken into information this origin portion arriving astatine gross home merchandise (GDP) maturation projection of 6.3-6.8 per cent successful the fiscal twelvemonth 2025-26.

The Survey further said that humanities information and probe suggest that the Indian equity marketplace has been notably delicate to movements successful the US market.

The Nifty 50 has historically shown a beardown correlation with the S&P 500, with investigation of regular scale returns betwixt 2000 to 2024 revealing that successful 22 instances erstwhile the S&P 500 corrected by much than 10 per cent, the Nifty 50 posted a antagonistic instrumentality successful each but 1 case, averaging a 10.7 per cent decline.

On the different hand, during 51 instances erstwhile the Nifty 50 experienced a correction of implicit 10 per cent, the S&P 500 exhibited affirmative returns successful 13 instances, with an mean instrumentality of -5.5 per cent.

This underscores the asymmetric narration betwixt the 2 markets, highlighting a much pronounced interaction of the question successful US markets connected Indian equities than the different mode around.

It said that grounds shows that S&P 500 returns Granger-cause Nifty 50 returns, meaning that changes successful the US marketplace are a starring indicator for the Indian market, particularly during shocks, portion the reverse is not true.

Granger causality is simply a statistical conception that determines if 1 adaptable tin foretell different adaptable based connected its past values.

“This emphasises that Indian markets thin to respond much to trends originating successful the US, reinforcing the request for caution successful the lawsuit of a downturn successful the latter’s banal market,” it said.

Surge successful retail participation

The survey said that the unsocial capitalist basal astatine the National Stock Exchange (NSE) surpassed the 10-crore people successful August 2024, tripling successful the past 4 years, and presently stands astatine 10.9 crore (as of 26 December 2024). The fig of lawsuit codes, indicating a fig of capitalist accounts astatine NSE, has risen from a small nether six crore astatine the extremity of 2019 to astir 21 crore arsenic of December 2024.

Regarding activity, the fig of individuals that traded astatine slightest erstwhile a period successful the NSE’s currency marketplace conception accrued from astir 32 lakh successful January 2020 to astir 1.4 crore successful November 2024.

The fig of demat accounts person risen sharply by 33 per cent to 18.5 crore astatine the extremity of December 2024 connected a year-on-year basis.