India Finance Minister Nirmala Sitharaman.

(May 21): The surge in Indian equity derivatives that’s driven up volumes to the highest in the world is spurring concern among the nation’s policymakers that the frenzy may hurt efforts to harness household savings for productive purposes.

Finance Minister Nirmala Sitharaman and Chief Economic Advisor V Anantha Nageswaran sounded caution in recent days about growing retail participation in the equity futures and options market.

“We need to ask ourselves is that a sign of progress or a sign of concern,” Nageswaran said at an industry event last week. “India needs to make sure that the capital market grows in areas where the country can actually harness household savings for productive purposes.”

The notional volume of equity derivative trading in India reached US$6 trillion (RM28.16 trillion) in early February, a six-fold surge since the start of 2022, before easing recently.

This “unchecked retail surge” could lead to future challenges for the markets as well as for household finances, Sitharaman said last week.

The surge has come despite repeated warnings from the country’s securities market regulator, whose own studies suggest that 90% of active retail traders lose money trading derivative contracts.