India’s wealth engine turns domestic, but behaviour still trails the money

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The balance of market power in India has shifted. In The Wealth Formula's latest, Diwali special roundtable, in conversation with N Mahalakshmi, India's top private bankers spoke on how foreign flows have turned episodic. All of it as domestic investors continue to feed the liquidity that keeps markets buoyant — through systematic inflows into mutual funds, PMS and alternate assets.

“In the last four years, domestic institutions have put in Rs 15.5 lakh crore into equities — 5X the previous eight years,” said Feroz Azeez, Deputy CEO, Anand Rathi Wealth. “Even if the market corrects by 10/20 percent, there’s more demand than supply from local investors.”

The scale of that shift is staggering. Azeez estimates that monthly SIP flows could hit Rs 48,000 crore within two years, taking cumulative domestic inflows to over Rs 54 lakh crore by the end of the decade.

But what hasn’t changed is investor behaviour. “When values become larger, recency biases become stronger,” Azeez said. “Smart money isn’t always smart — sometimes retail portfolios show better risk-adjusted returns than Rs 100-crore ones.”

It’s not about the next product or theme, he added, but about asset allocation. “A portfolio with 70 percent in debt and 30 percent in equity can underperform one with a 34:66 mix. The problem is behavioural, not analytical.”

That behavioural gap is showing up just as post-tax returns are pushing money out of debt and into riskier assets. “Fixed income has become a safety pool, not a percentage allocation anymore,” said Yatin Shah, Co-founder of 360 ONE and CEO, 360 One Wealth.

Umang Papneja, CEO, Julius Baer, sees the same trend from a different lens: “New HNI allocations are coming at the cost of debt, not equity. The risk appetite isn’t necessarily higher, but investors are realising that being underinvested is also a risk.”

Regulation, meanwhile, is redrawing the product map. The Special Investment Fund (SIF) framework under mutual funds — which offers AIF-like flexibility with greater transparency — could reshape how alternates are managed.

“It’s going to make the pie bigger,” said Rajesh Saluja, CEO and MD, ASK Wealth, added, “Many fund managers may simply migrate AIF strategies under the mutual fund license — it’s a cleaner structure.”

Real estate, too, is making a comeback — but not in the old form. “The developer end of the chain offers far higher IRRs than buying properties,” Saluja said. With Sections 54 and 54F now capped at Rs 10 crore, the familiar tax-driven reinvestment cycle is over. “Real estate is becoming more transparent and structured — but also less tax-efficient,” Azeez observed.

What’s emerging is a very different wealth ecosystem — deeply domestic, tax-aware, and product-diversified, yet still learning to overcome its emotional impulses. The flow of money has matured. Investor temperament hasn’t.

“If you want to make three times what you make in an FD,” Azeez said, “you have to be willing to withstand a couple of years of pressure. Otherwise, you’re not ready for equity yet.”

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