The retail investors’ faith in the domestic equity markets remains unshaken even as the headline returns appear muted over the last two years, as evidenced by the strong inflows in the recent past.
In the latest test for investor appetite in March, when the Middle East crisis and high crude oil prices pushed Nifty 50 to its worst monthly fall in six years, retailers’ faith in equity funds remained unfazed, and SIP numbers notched record highs.
AMFI data for March showed that , the highest ever, underscoring the growing preference for disciplined, long-term equity investing among Indian households. And net flows into equity mutual funds jumped 56% on a month-on-month basis to ₹40,450 crore.
This show of confidence has helped cushion the fall on Dalal Street seen due to relentless selling by (FIIs). But the question is, how long will the retail investors continue to keep their faith in Indian equities as the performance of the benchmark index remains uninspiring?
Nifty 50 has risen even less than 2% in the last 24 months, challenging investor patience at a time when the global market performance has remained strong. Asian peers and US markets are trading at or close to record high levels.
According to Karan Aggarwal, Co-founder & CIO, Ametra PMS, a big chunk of investors have entered markets in the last 10 years with zero experience of a prolonged bear market and a healthy cushion of gains accumulated during the 2020-2023 period.
What could derail retail investor enthusiasm?
Analysts believe that if Nifty returns remain weak for a longer period, it might actually derail investor interest in the stock market.
Santosh Meena, Head of Research at Swastika Investmart, believes the primary deterrent for investors will likely be the “fatigue of time correction,” where the opportunity cost of stagnant equity returns becomes untenable compared to the 7.5–8% yields offered by fixed-income products.
This psychological shift is compounded by a precarious macro environment. Meena said that Brent crude is sustaining above $100, and a weakening rupee continues to drive aggressive FPI outflows, forcing domestic SIPs to act merely as a cushion rather than a growth engine.
And if prolonged weakness in the market persists, either due to oil shocks or any other factor, it may force SIP investors to reconsider their position. “Prospects of elevated oil prices into June 2026 or AI bubble burst in the US can create a sustained bear market where buyers are subscribing to a losing SIP for more than 12 months, eradicating past gains and might force a rethink on the part of investors,” said Aggarwal.
Currently, the is trading at a premium P/E of 21x. Any further deceleration in the earnings could further make valuations look steeper and push the FIIs away from India towards other emerging markets.
Abhinav Tiwari, Research Analyst at Bonanza, said that many large-cap stocks are pricing in optimistic growth, leaving limited room for upside if earnings disappoint. This becomes more relevant in sectors like IT, where companies are facing an AI-led disruption but have yet to fully monetise it.
“FIIs have been intermittently exiting, and “smart money” is increasingly exploring other emerging markets with better relative valuations and growth prospects. As India slips to the 3rd position in emerging markets, rising crude prices are emerging as a key risk to growth. However, even with these headwinds, if growth sustains above 6.5%, it remains relatively strong versus peers,” he added.
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