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Policy stability key for markets, says Nirmala Sitharaman amid rising volatility

Slumping share prices have fueled speculation the prime minister’s re-election bid is struggling. In fact, traders are as clueless as everyone else.

Policy stability key for markets, says Nirmala Sitharaman amid rising volatility

Finance minister Nirmala Sitharaman on Tuesday urged the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) to work closely with the market regulator Sebi, to ensure stringent compliance and robust regulatory standards to boost investors confidence.

“Any unchecked explosion in retail trading of futures and options can create future challenges, not just for the markets for the investor sentiment and also for household finances,” Sitharaman told an interactive session on the Indian financial markets.

“We need to have both the BSE and NSE ensuring market stability, mitigating systemic risks and making sure that the stock exchanges leverage technology, adopt blockchain and AI and have big data to improve efficiency and (bring more) transparency in security.”

"Stability of government, stability of policy, particularly of taxation policy and predictability... and above all, the soft touch regulatory framework. These are the high points which make markets efficient," Sitharaman said.

The finance minister's comments come amid growing market volatility.

The India VIX, an indicator of the market's expectation of volatility in the near term, has risen by a massive 60% over the past six sessions—from a low of 13.44 to a high of 21.49 on Monday amid the ongoing Lok Sabha election.

The VIX shares an inverse correlation with the market: rising when the market falls, and vice-versa.

The latest level of the VIX is the highest in 19 months and way higher than the average of 12.44 in the 2023-24 financial year.

Speaking on her government's strategy for economic development, the finance minister said investment-led growth, combined with inclusive growth with an element of welfare, empowering the poor by providing them with basic requirements, opportunities, skilling, education, finance, and credit was her government's vision.

"This government's route is to have an investment-led growth strategy in which policies for greater FDI flow, policies for greater openness and transparency with a lot of technology infusion, whether it is in the markets or whether it is in the institutions such as banks, technology and adapting it so that it becomes easy for the common citizen to perform their daily chores," Sitharaman said.

"So for a stable, vibrant and deep Indian financial market, the prerequisite, as I would put before you today, is to have a stable government, a majority government and a government with visionary leadership," she added.

The finance minister said more investors are investing in India, the fastest-growing major economy.

"The MSCI Emerging Market Index is also something which speaks for your performance. One of the most followed indices in the world in 2013 placed us at 6.3%, whereas it is now more than doubled to 14.6%," Sitharaman said.

The finance minister said there has been a marked change in the way Indians utilize their savings, from depositing them in the post office and as fixed deposits in banks, to investing in equity markets, mutual funds, and other investment instruments.

"People are willing to put money in the stock markets because they are better informed and as a result, where in 2013 we had only two crore demand accounts, retail demand accounts, today we have 15.1 crore demand accounts.And just in the last year, about 3.6 crore retail demand accounts have been added to this list," she said.

"Even the mutual fund industry, which 10 years ago managed assets worth only ₹6 trillion, today stands managing assets worth ₹54.1 trillion," she added.

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