Retail investors loosen grip as volatility spikes amid weak returns | Markets News

The spike in volatility and poor trailing returns has impacted individual investor sentiment. Direct participation by retail investors in the domestic equity market has slipped to a multi-year low, even as they continue to channel savings into equities indirectly through mutual funds.

The share of retail investor holdings in the total market capitalisation of companies listed on the National Stock Exchange (NSE) declined to a four-year low of 7.25 per cent in the quarter ended December 31, 2025, according to data from Prime Database. Retail investors are defined as individuals holding shares worth up to Rs 200,000 in a single company.

High net-worth individuals (HNIs) — those holding more than Rs 200,000 worth of shares in a single company — also saw their presence diminish, with their share slipping to 2.03 per cent from 2.09 per cent in the September quarter. As a result, the combined ownership of retail and HNI investors fell to a three-year low of 9.28 per cent.

Market participants attributed the decline in the value of direct individual holdings largely to the sharp correction in small- and mid-cap stocks.

“Some stocks in the small- and mid-cap space have corrected between 20 per cent and 50 per cent. Individual investors typically have greater exposure to these segments,” said G Chokkalingam, founder of Equinomics. “Over the past year, the share of the top 250 stocks in overall market capitalisation has risen sharply, while market-cap erosion has been much steeper in mid- and small-cap stocks.”

Chokkalingam added that the value of retail and HNI shareholding could recover in the coming quarters as valuations in the small- and mid-cap space have moderated and market sentiment has improved following the India–US trade deal.

While direct individual ownership weakened, domestic institutional dominance strengthened further. Holdings of domestic institutional investors (DIIs) rose to an all-time high of 18.72 per cent, up from 18.28 per cent as of September 30, 2025, supported by net investments of Rs 2.1 trillion during the quarter. The increase was driven primarily by domestic mutual funds, whose ownership climbed to a record 11.1 per cent.

“Mutual funds appear poised to overtake foreign investors in the coming quarters. This trend began after demonetisation in 2016 and accelerated during the Covid-19 period,” said Pranav Haldea, managing director of Prime Database Group. “Flush with steady retail inflows via SIPs, mutual funds invested a net Rs 1.1 trillion during the quarter, even as foreign institutional investors recorded net outflows of Rs 11,765 crore.”

Foreign portfolio investors (FPIs) saw their share fall further to a 13-year low of 16.6 per cent in the December quarter amid sustained selling pressure. Despite this, FPIs emerged as the most effective allocators among investor categories, with the average share price of FPI-owned stocks rising 7.1 per cent during the quarter. This was followed by domestic institutions, whose average stock prices rose 2.4 per cent. In contrast, the average share price of retail investor-owned stocks declined 10.3 per cent, the steepest drop among all ownership categories.