CEA expresses cautiousness over retail investors’ play in risky F&O segment in search of instant profits

Expressing cautiousness, Chief Economic Advisor (CEA) V Anantha Nageswaran has said he is “worried” over retail investors’ play in risky Futures and Options (F&O) segment in search of instant profits. He said the biggest threat to sustainable capital formation and also sustainable economic growth is the “short-termism” in attitudes that the country is afflicted with. Bemoaning the “furore” caused every time, there is a discussion on allowing corporate groups to promote banks despite the need for capital in a growing economy, he said India Inc needs to reflect on the state of corporate governance practices and analyse its own conduct.

He added that it is “puzzling” to see that a country otherwise blessed with a “deep spiritual heritage and wisdom” is actually interpreting mindfulness and living in the present in the wrong ways. He ruled that even now, people are mentioning handsome growth in F&O volumes, despite Sebi’s own studies suggesting that 90 per cent of trades in the riskier segment leading to losses for investors. making it clear that those two concepts stress on performing one’s duty and obligations without thinking about the fruits of the actions, he said ‘Our actions make me worry that we may be interpreting mindfulness and living in the present as being myopic’.

He said there is a need to change the outlook from a behaviourial perspective to achieve goals like long-term capital formation and growth. He ruled that there is an “adversarial” attitude among many stakeholders when it comes to regulators, wherein people overlook the fact a regulator’s job is to have a long-term view of things and “providing counterbalance for instant gratification or myopia”. He said ‘The underline focus that the regulators have is to ensure that we stay stronger for longer rather than get caught up in the immediate euphoria of our growth rates, market valuations’. Amid concerns that the activity in the F&O segment is fuelled by those seeking quick profits, he said the rising exposure of small investors in the segment “is a worry because we don’t want to go through boom and bust cycles again and again”.

Nageswaran said the economy is likely to grow 7 per cent in FY25 as well, which will make it the third year in a row when the GDP has grown at over 7 per cent. Stating that capital formation and economic growth are interdependent, wherein one feeds into another, he said the only mantra for policymakers in such times is not to be conventional and described India’s prudent response to the Covid crisis as a case in point. However, sustaining high growth performance has been “elusive” for India, which has had short periods of high growth that are typically followed by a long period of balancesheet repair, dud loan cleaning for lenders, etc, he said, reminding that “we need to keep in mind that China grew around double digits for three decades”.