How Indian Public Markets are powered by domestic capital

India’s stock market is undergoing a transformation unlike anything seen before. Historically dominated by foreign institutional investors (FIIs) and large domestic institutions, the equity market is now seeing an explosive rise in retail participation. For the first time, Indian households are shifting away from gold and real estate to invest in stocks, mutual funds, and derivatives, making India one of the most dynamic retail-driven markets in the world.

The numbers tell the story. Retail investors have poured ₹2 trillion ($24 billion) into mutual funds annually, and the growth of Systematic Investment Plans (SIPs) has been unprecedented. Monthly SIP inflows have crossed ₹17,000 crore ($2 billion), proving that Indian investors are committing to long-term financial assets instead of traditional savings instruments. This shift has deepened the equity culture in India, making the stock market a key player in the country’s economic expansion.

The rise of retail investing has also reshaped market dynamics. Unlike previous decades, when market volatility was dictated by FIIs, today, domestic retail investors are acting as a counterforce to global sell-offs. This was evident during the FII outflows of 2022-23 when retail inflows cushioned the market, proving that Indian investors are no longer passive spectators—they are active market participants.

But while the cash segment of the stock market is growing, the real frenzy is happening in the derivatives market. India has become the largest derivatives trading market in the world, surpassing even Wall Street. The daily options trading volume is staggering, but the problem is over 90% of retail traders are losing money in derivatives. The illusion of quick gains has drawn millions of new traders into options and futures, many without a clear understanding of risk management.

SEBI has stepped in to tighten regulations on derivatives trading, introducing measures such as increased contract sizes, restrictions on excessive speculation, and limits on intraday trading margins. While these moves aim to protect retail investors from unsustainable losses, they also indicate that market maturity will take time. India’s retail investing boom is still in its early stages, and investor education will be crucial to prevent excessive risk-taking.

A major driver of this equity market expansion is DPI (Digital Public Infrastructure). The rise of Aadhaar-based eKYC, UPI payments, and mobile-first trading platforms has democratized access to investing. A decade ago, opening a brokerage account was a lengthy process involving paperwork, but today, anyone with a smartphone and Aadhaar can start investing within minutes. Platforms like Zerodha, Groww, and Upstox have simplified investing, making stock market participation accessible to millions of first-time investors.

The cultural perception of investing is also shifting. For years, stock market participation was seen as risky, speculative, and reserved for a niche group of traders. Today, investment influencers, financial literacy campaigns, and social media finance communities have changed that perception. Investing is now mainstream. Parents are setting up mutual fund accounts for their children. College students are starting SIPs. The retail investing wave is no longer confined to India’s metros—it is spreading to tier-2 and tier-3 cities, where first-time investors are entering the market in record numbers.

India’s market is also witnessing a surge in direct stock ownership, with Demat account registrations crossing 130 million in 2024. This represents a seismic shift in household financial behavior. While mutual funds continue to dominate retail inflows, more Indians are now comfortable buying and holding stocks directly, indicating a growing confidence in equity investing.
However, with this rapid growth comes regulatory challenges. The explosion of meme stocks, speculative penny stock trading, and pump-and-dump schemes has led to increased scrutiny. SEBI has introduced stricter disclosure norms, circuit limits on volatile stocks, and enhanced surveillance to detect market manipulation. These measures are crucial in ensuring that India’s stock market growth is not driven by speculation but by genuine investor participation.

One of the biggest beneficiaries of this retail-driven equity boom is India’s IPO market. Companies that once sought overseas listings are now choosing to go public on Indian exchanges, as domestic investor demand continues to grow. 2023-24 saw record IPO subscriptions, with retail investors driving unprecedented demand for newly listed stocks. The success of these IPOs further reinforces that India’s financial markets are deepening, and domestic capital is becoming a powerful force in the country’s economic trajectory.

However, challenges remain. Retail investor behavior tends to be cyclical, and bull market euphoria can often lead to excessive risk-taking. During downturns, many first-time investors panic-sell, leading to volatility. Ensuring that this investing culture remains sustainable and not just a short-term trend will be critical.

India’s shift toward formalized wealth creation through equity markets represents a structural change in its economic fabric. For decades, India was a savings-driven economy, with capital locked in non-productive assets like gold and real estate. Now, financial assets are taking center stage, and capital markets are playing a larger role in wealth generation. This is a defining moment in India’s economic evolution, signaling that investors are willing to take calculated risks to build long-term wealth.
As retail investors continue to play an increasingly dominant role in India’s financial future, their impact on market stability, investment trends, and economic policy will only grow. The rise of domestic capital is reshaping India’s stock market, making it more resilient, dynamic, and globally significant.

India’s equity market is no longer just a playground for institutional investors. It belongs to its people now.

Sources: Indus Valley Report 2025

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