India’s equity revolution: How domestic investors are reshaping markets
Every month, retail investors in India channel billions of dollars to the equity market, reshaping the structure of capital markets and transforming how wealth is built across the country.
Shifting trade policies and other global uncertainties have largely kept foreign investors away from India’s equity markets through the first half of 2025. But while foreign portfolio flows were muted, domestic investors charged ahead. In July alone, flows into Indian equity mutual funds hit a record-breaking INR427.02 billion (USD4.91 billion).
Individuals investing directly in the stock market or through mutual funds now own 18.5% of the USD5.1 trillion equity market, a more than five-fold increase since March 2020. Over the past five years, mutual fund assets under management in India have grown at a faster rate than bank deposits, the traditional form of savings alongside gold and real estate. The State Bank of India reported that equities as a percent of household savings jumped from 2.5% in the financial year (FY) ending March 2020 to 5.1% in FY2024, rapidly changing the market’s make up.
“Promoters (people who started and developed a company and/or have control over it) owned 50% of the Indian market, and foreign institutional investors, pension funds and insurance companies owned 20%. Hardly anything was with the retail investors. Now that proportion is tilting,” said Jitendra Gohil, CFA, Chief Investment Strategist of Kotak Alternate Asset Managers. “People are investing a lot in mutual funds and that trend is picking up.”
Systematic investment plans (SIPs), which let people contribute small monthly amounts to mutual funds, have ushered in millions of retail investors into equities, reaching a record-high of INR284.64 billion (USD3.25 billion) in July. In addition, the number of securities accounts (called demat accounts) have reached 200 million as of June 2025.
Gohil attributes this surge to several converging trends: a growing working population eager to accelerate wealth creation, increasing access to banking, rapid digital adoption, the emergence of zero-fee brokerage platforms as well as the country’s solid economic fundamentals.
“The awareness is there that if I'm young, I need to invest in equities and stay invested for the long term. In the last 25 years, the per capita income of India has grown only six times while, for example, China’s has grown 14 to 15 times. But our stock market returned, net of dollar, 10% versus China’s 5% to 6%. That gives investors confidence that India's wealth creation will happen in the equity market,” he added.
Anil Ghelani, CFA, Head of Passive Investments and Products at DSP Mutual Fund, says that despite risks such as the tariffs, the market offers a 'sweet combination' of favorable factors for domestic investors.
“Corporate earnings have been, for the most part, growing very well. On the back of that, we are seeing good flows coming in. I think for some of the global uncertainties there has been a little bit of concern on and off, but still India’s economy has been very resilient to these shocks,” he said.
He added that structural trends such as urbanization, demographics, domestic consumption and digitalization suggest continued economic resilience over the long term.
Transforming domestic capital markets
The growing clout of domestic investors has widespread implications.
Domestic inflows have become a stabilizing force in equity markets, offsetting the impact of foreign investor outflows (Figure 3) and helping reduce market volatility in recent years (Figure 4). The Nifty 50 Index has started to decouple from the S&P 500 Index, positioning India as a potential diversifier in global portfolios.
“For the kind of outflow that we saw during the Global Financial Crisis that brought down the market by more than 50%, a similar amount of outflow today doesn't impact our market more than 3% or 4%,” observed Renu Maheshwari, Chairperson of the Association of Registered Investment Advisers in India.
India’s IPO market is also booming, as founders and large investors take advantage of growing market liquidity and stability to exit their positions by taking companies public. This, in turn, is creating a multiplier effect across the broader economy.
“Once the promoters sell their stakes, what will they do with that money? Because India is not fully capital account convertible, they cannot take money out of the country more than a certain amount. So, it is getting reinvested back into Indian equities and channeled into creating companies. So that's why you are seeing wealth management firms mushrooming because these billionaires are growing by leaps and bounds,” Gohil added.
The investing boom has left a tangible impact on households, with the National Stock Exchange estimating that equity investments have added a total of INR60 trillion to household wealth since April 2020 (Figure 4).
Education and ethics are key
While the investment industry is benefiting from this rising tide of flows, some market professionals caution about complacency among retail investors. Ghelani warns of “artificial optimism,” especially among young investors increasingly drawn to riskier derivatives products for the promise of high returns. India now accounts for nearly 60% of global equity derivatives trading volumes.
“The volumes coming from young Indians trading futures and options have grown from 31% to approximately 43% in just one year,” Ghelani noted. “One of the main reasons is that they have seen only constant growth. At some point, there will be a cycle in the market, and it will get tested.”
Compounding to these concerns is the rise of unregistered financial influencers or “finfluencers.” CFA Institute research found that only 2% of influencers are registered with the Securities and Exchange Board of India (SEBI), yet 33% provide explicit stock recommendations. More than 60% also fail to adequately disclose sponsorships or financial affiliations. The risk is that bad advice will lead investors into debt traps and poor financial decisions. SEBI has taken steps to crack down on these influencers such as removing content, and imposing bans and financial penalties.
With the current mutual fund penetration rate at only 20% compared to the global average of 74%, there is room for the industry to grow. But sustaining that growth will require skilled and ethical investment professionals, stresses Ghelani.
“You need to have a trusted wealth manager or financial adviser who will handhold you and guide you through that journey,” he said. One way to raise awareness and build trust, he added, is through knowledge sharing, such as CFA Society India’s long-running flagship wealth and investment conferences. “We are bringing together professionals with the right set of ethics, knowledge and understanding of capital markets, and the risk and return drivers of your money.”
In a vast country where first-time investors are entering the market in millions (Gen Z is now India’s largest demographic group and many are joining the workforce in coming years), spreading awareness about the value of professional advice can be a challenge.
But Maheshwari is optimistic that the idea is slowly catching on: “What happens is, when they start working in big corporates, then they become aware of this new breed of personal finance professionals who will help them create financially prosperous lives. And then they start reaching out, so it's trickling down.”
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