Retail investors who once dominated the cash segment are pulling back from direct trading, even as they continue to channel money indirectly through mutual funds.
But who will fill this gap? And what does it mean for the future of India’s markets?
The recently released National Stock Exchange (NSE) data shows that the most direct way for retail investors to participate in equities—buying and selling stocks in the cash segment—has seen a steady decline over the past five years.
Their share in the NSE cash market dropped to 34.2% in 2025-26 (until August), down sharply from the pandemic peak of 45% in 2020-21. This marks their lowest share in nearly a decade, comparable only to 2015-16, when retail accounted for 33% of activity. This highlights how a gradual retreat has eroded the dominance they once held during the post-covid boom.
Post-pandemic retreat
The pandemic unleashed an unprecedented rush of new investors into the markets, driven by easy-to-use digital platforms, abundant liquidity, and the lure of quick gains. In the five years before the covid outbreak (FY15-FY20), NSE and BSE together added just 17 million active demat accounts. But in the four years since the outbreak (FY20-FY24), that number skyrocketed to 110 million.
“Many new investors entered the markets hoping for quick gains. But after facing market cycles and poor returns, especially in the cash segment, they stepped back. Now, rather than trading themselves, they’re channelling money into mutual funds, insurance, and PMS—letting professionals manage their investments. That’s why domestic institutional investors (DIIs) are gaining ground, and retail activity has shifted to indirect routes,” said Anand K. Rathi, co-founder of digital-first investment management platform Mira Money.
But the surge in retail participation is ebbing nearly as rapidly as it swelled. Losses in speculative pockets of the market, new curbs on leveraged products and fading post-pandemic euphoria together are driving individuals to take a step back.
From cash to derivatives—until rules changed
While retail’s footprint in the cash segment has shrunk, it has expanded elsewhere. Retail participation in derivatives futures and options (F&O) rose from 23% in 2015-16 to 27.7% in 2025-26 (until August). For many new entrants, F&O became a gateway to the markets, aided by mobile trading apps, low entry barriers and the lure of quick wealth.
“A large number of young investors entered the markets post covid—over 100 million for the first time. Many saw F&O as a quick route to wealth, which pushed up its share while cash market participation fell sharply. But as regulators highlighted, most new traders lost money in F&O, and many thematic stocks corrected 30% or more year-on-year in the cash segment. Together, these factors led to the decline in retail’s share,” said G. Chokkalingam, founder of brokerage Equinomics Research.
However, regulators have tightened norms. A Securities and Exchange Board of India (Sebi) study showed most retail traders lose money in F&O. Higher margin rules, restrictions on weekly options, and suitability checks are aimed at curbing excesses.
Meanwhile, the recent F&O curbs have dampened the sentiments. “Retail investors are stepping back from both cash and F&O because Sebi has tightened norms to curb speculation. At the same time, disappointing returns—especially in small- and mid-cap stocks that are down 30-40% versus a 4-5% fall in the broader market—have driven home the risks of investing without understanding fundamentals,” said Rathi.
According to Sunil Nyati, chairman and managing director of stockbroker Swastika Investmart, though these curbs may temporarily dampen high-risk retail speculation, they are expected to foster a healthier, long-term-oriented investment approach. “With retail investors learning discipline and institutions bringing stability, the market is evolving in a way that supports sustainable growth,” he added.
Institutions and traders step in
As retail investors retreat, other participants are filling the vacuum. Proprietary traders, who use their firm’s own money to invest in capital markets, have emerged as a major force, with their share climbing from 21% in 2015-16 to nearly 29% in 2025-26. This makes them the second-largest group after retail, reflecting the rise of algorithmic strategies and high-frequency trading desks.
DIIs have also expanded their role. NSE data shows that retail investors haven’t quit equities altogether. They are increasingly channelling their savings systematically into mutual funds, insurance and pension schemes, with their participation rising from 10% to 13.8% over the decade. The surge in systematic investment plans (SIPs), now averaging ₹25,000 crore inflows each month, has strengthened DIIs as a counterweight to volatile foreign flows.
“The shift towards proprietary traders and DIIs is creating a more liquid, efficient, and stable market than the retail-led post-covid frenzy, though with less speculative vibrancy. This transition signals greater maturity and fundamental strength, replacing high-octane rallies with a more predictable market marked by deeper liquidity, sharper price discovery, and stronger long-term sustainability,” added Nyati.
Foreign portfolio investors (FPIs) have charted a more uneven course. Their share in the cash market fell from 23% in 2015-16 to 11.5% in 2020-21, reflecting global risk aversion and relative valuation concerns, before rebounding to 15.4% in 2025-26.
Return on the horizon?
Despite the current downturn in participation, analysts argue that retail’s story is far from over. History suggests that individual investors return with every bull market, only to exit during corrections, repeating a cycle of enthusiasm and disillusionment.
“Retail will return—this is cyclical. Every bull run brings in new investors, many of whom get hurt in corrections and shift to managed funds. The next cycle will again bring a fresh wave of participants, and the cycle of greed and fear will repeat,” said Rathi.
“The Indian equity market is moving toward a more mature ecosystem. Retail flows may moderate in the short term, but they won’t vanish. Instead, we are entering a phase where retail and institutional investors will play complementary roles, strengthening depth and stability,” Nyati concluded.
