Tepid earnings growth over the past 18 months and war-induced elevated crude prices are behind the decline. However, combined with retail flows through MFs, total individual ownership stands at 18.7%, exceeding FPI holdings of 15.8% as of FY26-end.
Summary
Tepid earnings growth over the past 18 months and war-induced elevated crude prices are behind the decline. However, combined with retail flows through MFs, total individual ownership stands at 18.7%, exceeding FPI holdings of 15.8% as of FY26-end.
Individual direct ownership of NSE-listed companies fell to a five-year low of 9.1% in the fourth quarter of the previous fiscal year (FY26), driven by lower participation amid volatile markets, an equity sell-off for the first time in seven years and growing access through mutual funds, per exchange data and analysts.
Direct ownership refers to individuals who trade directly, not through mutual funds. The ownership, at ₹37.4 trillion, is based on the total market capitalization of ₹408.6 trillion of the over 2,700 listed companies.
It is the lowest since FY21, when ownership stood at 9% ( ₹18.27 trillion) of the total market cap of ₹203.1 trillion, and 66 basis points below the 9.8% post-covid peak ( ₹42.8 trillion) recorded in December 2024, per NSE’s recently released Market Pulse.
The negative returns generated by the markets in the past 18 months due to tepid earnings growth through March 2026, coinciding with a month of the West Asia war, and the selling of ₹5,803 crore, following six years of net inflows worth ₹4.59 trillion, caused the decline, per National Stock Exchange (NSE) data.
The retreat from direct investing indicated a shift toward the mutual fund route. Domestic mutual funds recorded their eleventh consecutive quarter of rising ownership, hitting a fresh high of 11.4% of NSE-listed market capitalization, driven by continuous Systematic Investment Plan (SIP) inflows even though markets fell. Jointly, individuals—directly and through funds—held 18.7% of the market, or ₹76.5 trillion, outpacing foreign portfolio investors’ (FPIs’) 15.8% stake for the sixth straight quarter.
From direct to SIP
To be sure, the Nifty declined by 13.5% over the past 18 months, to 23,331.4 by March end. Similarly, the Nifty Midcap 150 was down 13% at 19,431, and the Nifty Midcap 250 plunged 22% to 14,288.
However, the rising cult of market access through mutual funds and exchange-traded funds also contributed to the decline, according to market experts.
“Markets are not doing so great since September 2024. Since then, we have seen the acquisition funnel has shifted more towards mutual funds and ETFs (gold and silver ) as a product,” said Ishan Bansal, co -head and CFO, Groww, the country’s biggest broker by clients, at its Q4 earnings call last month.
“The way the customer is getting introduced to the capital market has become slightly different because SIP (systematic investment plan) is one of the largest modes of AUM (assets under management) that is happening on MF…”
To be sure, the Nifty recovered 7% from the end of March to Wednesday’s close of 23,907.15 amid rising hopes of a resolution to the West Asia war. The Nifty Midcap 150 and Nifty Smallcap 250 outperformed significantly, rallying 18% and 20% from March end through Wednesday’s close at 22,884.9 and 17,103.45, respectively.
However, until a durable peace deal is sealed, markets are likely to remain volatile, impacting direct individual participation, according to independent market analyst Ambareesh Baliga.
Key Takeaways
- Retail direct ownership of NSE stocks fell to 9.1% in FY26.
- First retail net sell-off in seven years; ₹5,803 crore offloaded.
- Mutual fund ownership hit a record 11.4%, rising for eleven straight quarters.
- Combined individual ownership at 18.7% comfortably beats FPI holdings of 15.8%.
- Weak earnings and the West Asia war may keep retail participation subdued.
“Tepid earnings growth over the past year and the war most lately had an impact on retail inflows, which will improve once a durable peace deal is arrived at in West Asia,” said Baliga.
Volatile until peace
The Nifty 50 posted year-on-year operating profit growth of 6.3% and 6.7% in the FY26 quarters ended September and December, down from 9.4% and 10.5% in the year-ago quarters. This was driven by supply chain issues due to tariffs imposed by the administration of US President Donald Trump, falling urban consumption, and, most recently, elevated crude prices.
While earnings could be impacted for a few more quarters due to war-induced elevated oil prices—Brent was up 28% since the war began through Thursday’s close at $92.69 a barrel—that was discounted in the current Nifty price, added Baliga.
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