India’s deadly combo—market plunge, unemployment, stagnant wages & rising personal debt

One of Madhabi Puri Buch’s last acts as SEBI chairperson was to forcefully advocate the ‘sachetisation’ of mutual funds. It will only expose more Indians to risky investment.

Representational image | People outside BSE | ANI

A few days before the 2024 general election results, home minister Amit Shah and Prime Minister Narendra Modi urged Indians to go buy shares. Shah claimed that markets would “shoot up” when votes were counted and Modi announced that “as BJP hits record numbers, the stock market will also hit new record highs”. We all know what actually happened: The BJP lost its majority and the Nifty 50 index plunged 6 per cent on counting day, amounting to a loss of Rs 31 lakh crore in market capitalisation.

The Indian stock market recovered its strength for a couple of months before beginning a plunge in September 2024 that continues to this day. In just the last month, mid-cap and small-cap stocks have dropped 11 per cent and over 13 per cent respectively. Both are well past the 20 per cent fall from their peaks, which denotes the onset of a bear market phase. Over a quarter of small-cap stocks have lost more than 50 per cent of their peak capitalisation, a market carnage not seen since 2020.

So what, you might ask. Markets go up and down, and retail investors have once again fallen prey to recency bias. They’ve poured their funds into the riskiest small and medium-cap stocks that had risen the fastest, which are now inevitably collapsing.

Growing risk

There are at least four reasons to worry. First, stock ownership is at a record high and one in five Indian households are exposed to stock markets. Second, Indian households today have record personal debt, and any erosion in household balance sheets due to stock market correction could further hurt consumption and savings, and hence economic growth, which is already weakened. Third, SEBI is encouraging mutual fund products to low-income households, which could deepen systemic risks if not done correctly. And last, whether by their cavalier remarks or shielding of Madhabi Puri Buch—whose conflicts of interest made her patently unfit to remain SEBI chief—India’s two most powerful leaders have demonstrated that investor protection is the least of their problems.

Indians today are more exposed than ever to stock market volatility. The number of unique investors registered with the NSE crossed 11 crore in January 2025. And RBI data show that in 2023-24, Indian households allocated 7 per cent of their savings to mutual funds (mostly equity) and just under another 1 per cent to direct equity.

Furthermore, 1.1 crore individuals took part in the riskiest part of the stock market—futures and options—in 2024. A SEBI study revealed that 93 per cent of individual traders in the equity derivatives segment incurred losses totaling Rs 1.81 lakh crore in 2021-24. This activity declined after SEBI tightened the rules to curb derivatives trading in November 2024, but much of the damage had already been done.

This highlights a deeper malaise. India’s capital markets are flourishing, yet private investment is weak, and manufacturing has fallen to multi-decade lows, now below 13 per cent of GDP. The 2024-25 Economic Survey boasted that India’s market-cap to GDP ratio had surged to 136 per cent by December 2024—double that of China’s, triple of Brazil’s, and 1.5 times that of South Korea’s. However, this imbalance reflects a struggling manufacturing sector and a lack of quality job creation rather than genuine economic strength. Hyper-financialisation cannot substitute for economic development.

The takeaway is that any sustained market weakness could cause real damage to the savings of a substantial section of the population. The Economic Survey echoed these concerns, stating that “given the increased participation of young, relatively new retail investors”, the impact of “a significant and prolonged market correction… on sentiment and spending may be non-trivial.”

Make NPS accessible

Anyone with a mobile phone knows how aggressively banks and financial institutions have been pushing personal loans to consumers. Predictably, this has contributed to increased household debt. According to the Indus Valley Annual Report 2025, the volume of new personal loans has risen 22 times since 2017 to almost 14 crore in 2024. About 82 per cent of these consisted of small-ticket personal loans, smaller than Rs 1 lakh. And household debt is at an all-time high of 42.9 per cent of GDP (as of June 2024), up from 34.8 per cent in 2019. What happens to these loans if household balance sheets are impaired by sustained stock market weakness is anyone’s guess.

One of Buch’s last acts as SEBI chairperson was to forcefully advocate the “sachetisation” of mutual funds. The idea was that if Rs 1 shampoo sachets caused an explosion in shampoo sales, then small-ticket mutual fund investments of Rs 250 per month could do the same for the mutual fund industry. This will expose an entirely new class of low-income investors to the risk of marketing and mis-selling.

The National Pension Scheme (NPS) already provides a flexible and prudent investment option, including its Tier 2 account, which allows withdrawals without lock-in. Its life-cycle options automatically adjust the balance between equities and debt, ensuring an appropriate risk level for individual investors. Too little equity, and investors could find their savings growing too slowly. Too much, and they could panic in a market reversal that causes their equity holdings to lose value. This balanced approach makes NPS a better choice for small, uninformed investors than introducing sachet-sized equity mutual funds. Making NPS more accessible would be a much smarter way to promote financial inclusion and market deepening.

The bottom line is this: a combination of joblessness, stagnant wages, and rising personal debt has eroded household savings. Net financial savings hit a record low of 5.3 per cent of GDP in 2022-23. This is all contributing to lower consumption, lower GDP growth, lower two-wheeler sales, disappointing corporate earnings, weak private investment, and hence an exodus of foreign investors to greener pastures. Of course, external factors are playing an important role, but the underlying story is domestic. As Warren Buffett famously wrote, “It’s only when the tide goes out that you learn who’s been swimming naked.”

Amitabh Dubey is a Congress member. He tweets @dubeyamitabh. Views are personal.

(Edited by Prasanna Bachchhav)