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CO
S
COPE
The Economy Observer
5 September 2024
Commendable improvement in the methodology for calculating household
savings/assets in the securities market
Although it does not change the macroeconomic narrative
1)
2)
3)
4)
The Securities and Exchange Board of India (SEBI)
published
a
“Working Paper on Household Savings through Indian
Securities Market”
on 4
th
Sep’24, which reviewed and updated the computation methodology of the savings of
households in the securities market. SEBI uses actual granular data, which improves the quality, scope, and accuracy of
capturing total household investments in the securities market.
Not only does the 11-page working paper explain the existing methodology for estimating financial flows (savings) and
stocks (assets) of households in the securities markets, but the proposed changes to the methodology also consider the
structural changes that the Indian securities market has undergone over the past decade.
The paper states that there are three sets of proposed changes regarding: 1) the category of investors (to be considered
under the household sector), 2) the instruments, and 3) the missing components. The details of these proposed changes
are explained in
Exhibit 1
on the next page. In our view, the four biggest changes are:
the inclusion of Non-Profit Institutions Serving Households (NPISHs) in the definition of investors (such as NGOs, trusts,
AOPs, charities, etc)
the inclusion of the secondary market data
the use of actual data from the primary market instead of fixed ratios used in the existing methodology
the inclusion of hybrid securities (REITs & InvITs) and the expansion of equity and debt segments
Due to these proposed changes, household financial savings under ‘shares & debentures’ increased over FY21-FY23
(Exhibit 2).
The average increase in these three years was 0.6 percentage point (pp) of GDP, including an increase of 1.2pp
of GDP in FY22 and 0.5pp of GDP in FY23.
The differences in the financial assets of the household sector are more pronounced, which has increased by 3-4x, as per
the revised methodology
(Exhibit 3).
Please note that while RBI has published the stock of financial assets of households
from FY21 to FY23 in Sep’23, it has recently published quarterly estimates of the financial wealth of Indian households,
which offer much broader coverage.
Since household financial savings are estimated by RBI using the bottom-up approach, i.e. by components, higher
investments in the securities market can increase the household Gross Financial Savings (GFS) and, thus, the Net
Financial Savings (NFS). Assuming that the estimates of other components (i.e. deposits, currency, insurance, and claims
on government securities and pension & provident funds) remain unchanged, HHNFS would increase to 8.4% GDP in FY22
(from 7.3% GDP earlier) and 5.7% GDP in FY23 (from 5.3% GDP).
However, these would lead to an equivalent reduction in physical savings as gross domestic savings (and thus, household
total savings) are unlikely to change due to revisions in HHNFS. Physical savings, thus, would be reduced to 11.7% GDP in
FY22 (from 12.8% GDP earlier) and 12.7% GDP in FY23 (from 13.2% GDP). This is because gross domestic savings are
estimated indirectly using total investments and current account balance, none of which are affected by revisions in
HHNFS. It also suggests that ‘errors & omissions’ under total investments were higher than estimated over FY21-FY23.
Overall, the improved and comprehensive methodology to calculate household savings and assets in the Indian securities
market is commendable; however, it does not change much in the macro narrative. It suggests that HHNFS was not as
low as estimated in FY23; however, even at the revised GDP of 5.7%, it was the lowest in four decades. Physical savings,
on the other hand, were not as strong. Further, the skewness in the composition of household savings (between financial
and physical assets) was not as extreme in FY23 as earlier believed to be. Lastly, the financial assets of Indian households
are much higher, which means that their financial net worth is stronger.
What about FY24? Well, SEBI’s working paper calculates that household savings in the securities market was 1.2% GDP in
FY24, same as in FY23. It also confirms that household assets in the securities markets grew 52% YoY in FY24, rising to
43.3% GDP from 31.1% in FY23 (and 36.1% in FY22).
Nikhil Gupta
– Research analyst
(Nikhil.Gupta@MotilalOswal.com)
Tanisha Ladha
– Research analyst
(Tanisha.Ladha@MotilalOswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset, and S&P Capital.