Retail investors lose steam as market volatility weighs on sentiment

The slowdown in retail participation comes amid heightened volatility in domestic equities, driven by geopolitical tensions, persistent foreign fund withdrawals, and stretched market valuations.

After months of steady foreign investor outflows, India’s retail investors are also beginning to retreat from the secondary markets.

In 2025 so far, retail participants have made net purchases of just about Rs 7,400 crore — a sharp fall from Rs 1.66 lakh crore invested during 2024. Buying activity was confined to January, February, July, and August, with retail investors turning net sellers in the remaining months.

The slowdown in retail participation comes amid heightened volatility in domestic equities, driven by geopolitical tensions, persistent foreign fund withdrawals, and stretched market valuations.

While the primary market remains vibrant with a steady stream of IPOs, several recent listings have delivered weak or negative post-listing returns, further dampening retail appetite for secondary market investments.

“Prolonged periods of poor returns typically erode retail interest in equities, and the current phase is no exception,” said independent market analyst Ajay Bagga.

“With 13 consecutive months of negative index-level returns — and even deeper declines across the broader market — new demat account openings, trading activity, and direct market inflows have all dropped. The frenzy around IPOs is also drawing funds away from secondary markets, though the recent underperformance of new listings may soon cool that trend. Meanwhile, gold and silver are witnessing strong inflows, with a noticeable shortage of physical supply for investment.”

Indian equities have lagged global peers this year. In dollar terms, the Sensex has gained just 1.8 percent, while the Nifty is up 2.5 percent. In contrast, global indices have surged — the S&P 500 has advanced 14 percent, Dow Jones 10 percent, Nasdaq 19 percent, FTSE 100 24 percent, CAC 40 22 percent, DAX 38 percent, Nikkei 25 percent, Hang Seng 34 percent, CSI 300 21 percent, Kospi 55 percent, and Jakarta Composite 13 percent.

Concerns over elevated valuations and tepid earnings growth have kept retail investors on the sidelines. Many first-time investors from the post-COVID bull run are now facing their first sustained market correction. In contrast, gold has emerged as the preferred safe-haven asset, offering stability and consistent returns amid global uncertainty.

“The market appears to be bottoming out, and we expect retail confidence to gradually recover on the back of an earnings revival in the second half of FY26,” said Antu Eapen Thomas, Research Analyst at Geojit Investment.

“This optimism is supported by GST rationalisation, easing inflation, the RBI’s upward revision of FY26 GDP growth to 6.8 percent, and diminishing trade-related risks. Moreover, the recent 25-basis-point rate cut by the US Fed — and expectations of further cuts — could weaken the dollar and revive foreign inflows into emerging markets like India, improving overall sentiment.”