The share of direct retail participation in India’s largest stock exchange’s cash turnover has fallen to its lowest in a decade, dragged down by risk aversion amid underperforming equity benchmarks, the rise of mutual funds and reallocation towards initial public offerings.
Direct retail contribution as a percentage of gross turnover–buy plus sell volumes–fell to 33.6% in 2025, according to the data from the National Stock Exchange (NSE). This category of investors directly buys stocks rather than investing through mutual funds.
Individual investors accounted for nearly 43% of the overall contraction in cash market turnover during the year, while the share of proprietary traders rose to a 21-year high of 29.7%.
Retail turnover stood at ₹166.56 trillion, while proprietary traders, including high-frequency traders (HFTs), contributed ₹147.43 trillion to the total gross turnover of ₹496.11 trillion, showed the data. Total turnover was down 14.5% from 2024.
“One is the risk, with cost averaging having not worked last year as it did in the previous years since the pandemic, leading to increased risk-aversion,” said independent market analyst Ambareesh Baliga. “Also, it’s likely that retail is shifting from the direct mode to trading through mutual funds.”
Nilesh Shah, managing director at Kotak Mahindra Asset Management Co., attributes it to the rise of HFTs or algo traders, alongside a shift to participation through mutual funds. “While the MF cult is growing, direct retail has been losing to sophisticated HFTs who have the tools and deeper pockets to prevail over the former in trading.”
Indeed, the number of folios in equity-oriented schemes stood at 178.48 million as of the end of December, compared with 157.49 million a year earlier, according to Association of Mutual Funds in India (AMFI) data. Investments through the systematic investment plan route rose to a record of ₹31,002 crore last month, the data showed.
The NSE data shows that while retail direct net sold shares worth ₹57.17 billion in the cash segment in 2025, they invested ₹428 billion in primary issuances over the same period, making their overall net flows into the markets (cash plus primary) stand at a positive ₹371 billion.
Underperformance
Retail risk aversion grew amid India’s underperformance against all global benchmarks due to an earnings slowdown amid lofty valuations.
The Nifty 50’s one-year return as of December end at 10.5% lagged the 19.5% gain in the MSCI World index and 30.6% return of the MSCI Emerging Market index. The return was also much below that of S&P 500’s 16.4%, Euro Stoxx 50’s 18.3% and FTSE 100’s 21.5% one-year return.
Outlook
Baliga expects the direct retail share to recover as the market momentum picks up, especially for small- and mid-cap companies, this year. He expects the reduction in goods and services tax and income tax rates by the government last year, alongside interest rate cuts by the Reserve Bank of India, to drive consumer demand and earnings.
While Shah of Kotak Mahindra AMC expects India’s underperformance to narrow in 2026, he still anticipates a reduction in direct retail participation due to the dominance of HFTs. “Investor expectations of annual returns should moderate from 25-30% to high single or low double digits, going forward.”
Meanwhile, the count of investors who traded at least once in the year through December 2025 on NSE’s futures and options segment fell 26% to 8.3 million due to a raft of regulatory measures to cool retail exuberance and risk aversion.
