The Economic Survey 2023-24 has said that the “financial sector should expand at a pace that is in lockstep with economic growth”.

This is being read as a loaded comment at a time the Indian stock markets have been ranked among the best performing in the world with the Nifty 50 climbing 26.8 per cent against a drop of 8.2 per cent in 2022-23.

Raising concerns over the rising interest shown by retail investors in derivative trading, the survey called for a ``careful consideration’’ over their increasing participation in the stock market which could lead to speculation in the hope of making greater returns.

These two red flags have added to the speculation that the budget could contain some steps such as higher income tax or TDS on F&O trading.

The increase in retail investor participation in F&O trading is likely driven by humans’ gambling instincts, the survey said.

``Derivatives trading holds the potential for outsized gains. Thus, it caters to humans’ gambling instincts and can augment income if profitable. These considerations are likely driving active retail participation in derivatives trading.”

The best way for the financial sector to grow was in tandem with economic growth.

``In particular, India can ill-afford the economy’s over financialisation at its current development stage. The increased retail participation in financial markets and familiarity with financial products are beginning to grow in line with India’s emergence as the world’s fifth-largest economy.”

It pointed out that while the outlook for India’s financial sector appears bright, some areas will require focused attention.

The survey warned investors that any potential correction in the stock market, could make them feel cheated.

“A significant stock correction could see losses that are more considerable for retail investors participating in capital markets through derivatives. Investors’ behavioural response would be to feel ‘cheated’ by unseen more considerable forces. They may not return to capital markets for a long time. That is a loss to them and the economy,” it observed.