India needs to have gradual evolution of financial market: Eco Survey

Commodity derivatives turnover rose by 87 per cent in FY24, driven by an increase in turnover of options contracts of the energy segment. The number of unique tax IDs registered on the National Stock Exchange (NSE) rose from 2.7 crore in FY19 to 9.2 crore in FY24.

The Survey pointed out that most of the new retail investors are likely young and may have a higher risk appetite.

"It is also reflected in the interest that retail investors have shown in derivatives trading, especially expiration-day trading. While derivatives are hedging instruments, they are mostly used as speculative instruments by investors worldwide. India is likely no exception," it warned. It added that derivatives trading holds the potential for outsized gains and caters to "humans' gambling instincts and can augment income if profitable".

"These considerations are likely driving active retail participation in derivatives trading. However, globally, derivatives trading loses money for the investors, for the most part. Raising investor awareness and continuous financial education is essential to warn them of the low or negative expected returns from derivatives trading," suggested the Survey document.

A significant stock correction could see losses that are more considerable for retail investors participating in capital markets through derivatives. "Investors’ behavioural response would be to feel 'cheated' by unseen more considerable forces. They may not return to capital markets for a long time. That is a loss to them and the economy," the Survey noted.

It said that all stakeholders -- market participants, market infrastructure institutions, regulators, and the government -- must ensure that capital markets play their theoretically assigned role of directing savings to their most productive investments.

"It is not just in the national interest. It is an act of self-interest, too," said the Survey.