IMF Reddit Mentions | ChartExchange

Lately, I’ve been thinking about how different the Indian market looks today compared to a few years ago.

There’s obviously been a lot happening since 2020the liquidity boom, the 2022 correction, the huge retail participation, the F&O explosion, the rise of SIPs and domestic flows, and now the changes happening around leverage.

None of these things are new individually, but when you put them together, I think they paint a pretty interesting picture of how the market has changed.

So I thought I’d put together a few things I’ve been observing and share them here. It turned out a little longer than I expected, so apologies in advance

If you look at what happened after 2020, I think the first phase was fairly straightforward. 2020-21 was largely a liquidity and reopening story.

Central banks were pumping liquidity into the system, interest rates were extremely low, economies were reopening and money was flowing back into risk assets. At the same time, retail participation in India started growing at a crazy pace.

RBI’s data shows how quickly the market recovered after the March 2020 crash, and NSE’s investor base went from roughly 4 crore investors in March 2021 to 10 crore by August 2024. RBI, NSE

Then 2022 came along and the whole environment started changing.

Inflation picked up, the Russia-Ukraine war pushed commodity prices higher and the Fed started aggressively tightening. So naturally, the easy-liquidity trade started getting hit.

Nifty corrected around 18%, but what I find interesting is that the correction more or less stopped there. It didn’t turn into one of those prolonged bear markets we’ve seen in the past.

From the June 2022 low, the market basically started another leg higher.

Over the next two years, Nifty went from around 15,000 to above 26,000. And this time, I don’t think you can explain the entire move just by saying “liquidity”.

There was a lot more happening underneath. Earnings were improving, domestic institutions were buying, banks were in a much better position, capex was picking up and India’s relative economic story was looking pretty strong.

The IMF actually has some interesting numbers around this. Between 2021 and 2024, MSCI India returned about 78%, compared with -17% for MSCI Emerging Markets and 57% for the S&P 500. It also points to the improvement in Indian corporate earnings and the expansion in valuations. IMF

But then, somewhere around September 2024, the character of the market started changing again.

Nifty had reached around 26,300, and from there we saw roughly a 17% correction. And what’s interesting to me is that this wasn’t really happening in isolation.

At around the same time, India’s derivatives market was also going through a pretty big structural change.

SEBI started tightening the framework around weekly expiries, contract sizes, expiry-day risk and position monitoring. And when you look at the numbers, you realise just how big the derivatives boom had become.

Individual index-options turnover had grown at roughly an 82% CAGR between FY20 and FY25. SEBI

And this brings me to something I think is worth watching more closely: leverage.

F&O is obviously one form of leverage, but MTF is another.

And MTF has become much more relevant now. SEBI’s 2026 consultation itself talks about the growth in MTF volumes and the risks around funded positions and the collateral supporting them. SEBI

At the same time, the other side of the equation has also changed quite a lot.

Domestic money has become much bigger.

Just look at SIPs. Annual SIP contributions have gone from roughly ₹96,000 crore in FY21 to around ₹3.5 lakh crore in FY26. AMF

So when I compare today’s market with something like 2008, I don’t think we can really look at them in exactly the same way.

Back then, global capital flows were a much bigger part of the story. Today, we have a massive domestic investor base that is continuously putting money into the market.

But that obviously doesn’t mean the market can’t fall.

It probably just means that the way a correction plays out could be quite different.

Anyway, that’s how I’ve been looking at it. Maybe I’m missing something, so would genuinely like to hear what others think.

If you have reached till here, Thank you soo much !!

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