Nine out of 10 individual traders lost money in the futures and options (F&O) segment of the stock market in three years between 2021-2022 (FY22) and FY24, a study by the Securities and Exchange Board of India (Sebi) points out. An estimated 11.3 million retail investors collectively lost Rs 1.81 trillion during the three years (an average of Rs 2 lakh per trader); FY24 alone accounts for Rs 75,000 crore in net losses.<\/p>\n
The latest study follows the capital market regulator\u2019s January 2023 report, which had found that 89 per cent of individual F&O traders lost money in FY22.<\/p>\n
Despite consecutive years of losses, more than three-fourths of the traders who suffered losses continue their F&O activity. In fact, the number of retail traders\u00a0dabbling in F&O has increased from 5.1 million in FY22 to 9.6 million in FY24. No wonder then that the average daily turnover on stock exchanges has surged to a record high at Rs 540 trillion in September compared with close to Rs 360 trillion a year ago.<\/p>\n
In FY24, nearly 7.3 million individual traders lost money, with an average net loss of Rs 1.2 lakh per person, inclusive of transaction costs.<\/p>\n
Only 7.2 per cent of individual F&O traders made a profit over the three-year period. About 1 per cent of individual traders managed to earn profits of Rs 1 lakh or more, after adjusting the transaction costs, while 3.5 per cent of those who lost (around 400,000 traders) incurred an average loss of Rs 28 lakh over the last three financial years.<\/p>\n
Where do these traders come from? What’s their socioeconomic background? Well, over 75 per cent of individual traders had declared an annual income of less than Rs 5 lakh.<\/p>\n
\u201cA rise in individual traders\u2019 participation in the F&O segment has \u2026 kick-started a debate on product suitability and the need for safety nets and firewalls for individual investors,\u201d the latest Sebi study points out.<\/p>\n
There is also a debate on where the money is coming from. At the recent Business Standard<\/em> BFSI Summit, former banker <\/strong>KV Kamath said the financialisation of savings has been propelled by technology, but that\u2019s only one side of it. \u201cWe should also reckon what the Reserve Bank of India (RBI) governor, in particular, has been talking about \u2014 the risks in terms of operating in markets in a way that you ought not to\u2026 Laypeople are getting into the F&O segment.\u201d<\/p>\n Kamath went on to say, \u201cPeople who have lost money in the F&O segment have come from the unsecured loan market. That is why I think the RBI is right to caution on unsecured lending and end use of money that is borrowed from providers of funding\u2026 So, financialisation is good. But I think rash activities are not good\u2026 That is why the red flag is being raised by both regulators.\u201d<\/p>\n At the same summit, when asked whether part of the bank credit was flowing into the stock market, RBI Governor Shaktikanta Das said there\u2019s \u201cno hard data\u201d on that; there’s only anecdotal evidence. The RBI has conducted a \u201cquick sample survey and got a broad sense of what\u2019s\u00a0happening,\u201d\u00a0he said but did not share the outcome of the survey. \u201cIt\u2019s very difficult to quantify (how much money is flowing into markets) but we have got a broad sense,\u201d he said.<\/p>\n The RBI has tightened the norms for IPO financing and loan against shares. For the banking sector as a whole, Das doesn\u2019t see a major risk \u2013 something that can cause systemic instability \u2013 at the moment, but he asked the banks to monitor the end use of unsecured loans.<\/p>\n Let\u2019s look at the flow of bank credit over the last couple of years.<\/p>\n As on September 20, total bank credit stood at Rs 171.25 trillion, up 13 per cent over the past one year. In the previous year, between September 23, 2022 and September 22, 2023, the growth was 20 per cent.<\/p>\n In the past one year, the growth in credit given to agriculture and allied activities has been 16.4 per cent, industry (micro, small, medium and large) 8.9 per cent, services 13.7 per cent, and personal loans 13.4 per cent. The comparable figures for the previous year were 16.7 per cent, 6.5 per cent, 25.4 per cent and 30 per cent, respectively. While loans to the industry have gone up, they remain almost flat for agriculture, while there has been a sharp drop in personal loans and loans to services.<\/p>\n Now, let\u2019s turn our attention to some of the sub-sectors. The growth within personal loans for buying consumer durables is 8.6 per cent, down from 9.8 per cent; against fixed deposits, it\u2019s 9.4 per cent, down from 18.7 per cent, and for other personal loans, it is 11.4 per cent, sharply down from 26.3 per cent. However, loans against loans and shares have jumped to 22.9 per cent from 5 per cent, and loans against gold jewellery are up 51 per cent from 14.6 per cent.<\/p>\n All these figures speak about the flow of bank money into different sectors.\u00a0The non-banking finance companies (NBFCs) too lend to these sectors. They have been in the unsecured space in a big way but these figures don’t include their exposure.\u00a0There are 9,325 NBFCs and 94 housing finance companies, classified into three layers \u2013 upper layer, middle layer and base layer. Nine NBFCs in the upper layer have total assets of Rs 14.25 trillion, forming a little less than one-fourth of the assets of the sector. Banks are one of the sources of the money they lend.<\/p>\n The growth in their borrowing from the banking sector has dipped from 21.9 per cent to 9.5 per cent during this period<\/p>\n What do these figures tell us? The RBI has sensitised the banking industry about the perils of unsecured loans. There\u2019s a dramatic increase in loans against gold, but when it comes to other segments of personal loans, particularly unsecured loans, growth has dropped in the past one year. The growth in bank loans to the NBFC sector has also dropped sharply.<\/p>\n Going beyond moral suasion, the RBI had, last November, jacked up the risk weightage for unsecured loans from 100 per cent to 125 per cent. This raised the capital requirement for such loans and made them costlier for borrowers. The risk weightage for bank loans to higher-rated NBFCs, too, was increased by 25 percentage points.<\/p>\n The capital requirement was raised for consumer credit \u2013 outstanding as well as new \u2013 including personal loans but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery.<\/p>\n The growth in housing as well as vehicle loans is down. But that\u2019s a different story.<\/p>\n This column first appeared in <\/strong>Business Standard<\/em><\/strong>.<\/strong><\/p>\n The writer is a Consulting Editor with <\/strong>Business Standard<\/em><\/strong> and Senior Adviser, Jana Small Finance Bank<\/strong><\/p>\n