Strong retail participation is propelling India's stock market to a higher global rank: Assocham-Icra report

The domestic capital markets have witnessed a significant surge in retail investor participation, as is evident from the exponential rise in unique investor registrations in the National Stock Exchange (NSE). While it took 14 years for the NSE to reach one crore investors after the commencement of its operations in 1994, the pace of growth has significantly accelerated following the Covid-19 pandemic. Between March 2020 and February 2025, the unique investors participating directly through the NSE have increased by 3.6 times to 11.2 crore, translating to 1.6 crore per year, said an Assocham-Icra report.

Overall, the number of unique investors in the securities market ecosystem has almost tripled since March 2019 to over 13 crore now on the BSE and and the NSE, signalling the growing trust of retail investors in capital markets, according to the report titled ‘Growth catalyst for Viksit Bharat @ 2047 ', released Thursday.

As a result, India’s market capitalisation has grown to ₹440 lakh crore ($5.1 trillion), positioning it as the fourth largest equity market globally, trailing only the United States, China (including Hong Kong), and Japan. The outperformance of India’s capital markets has been an outcome of a slew of factors, including infrastructure development, political stability, prudent monetary policies, and most importantly, strong retail participation.

The domestic capital market has witnessed a prominent shift in trading activity as evidenced by the rise in active clients (traded in the past 12 months) as a percentage of unique investors, despite intermittent moderation. Average daily trading volumes have grown significantly from ₹0.35 lakh crore in FY19 to over ₹1 lakh crore now, indicating deeper liquidity and broader participation.

Huge potential to expand retail participation

Despite the sizeable increase in retail participation, India’s equity penetration remains low at about 8% compared to about 15-20% for China, about 45-50% for the U.S., and 55-60% for Japan, indicating significant potential for growth.

Given that India’s population is predominantly young, aspirational, and increasingly financially aware, the demographic presents a unique opportunity to deepen and broaden the domestic capital markets. With a sizeable increase in participation of young investors in recent years, the median/mean age has reduced to 32–36 in February 2025 from 38–41 in March 2019.

Since 2020, retail investors have become substantial net buyers of Indian equities, further solidifying their position in the following years. The direct investment of domestic households in equities during FY20–FY24 stood at ₹1.7 lakh crore, according to the report.

Meanwhile, the indirect participation through mutual funds remained even more prominent. In the past five years, domestic institutional investors have invested a net amount of ₹12.9 lakh crore in the cash market segment, with record net inflows of ₹6 lakh crore in FY2025.

Historically, the trends in FII flows have determined the direction for markets in India’s stock exchanges; however, with increasing retail participation in equities, retail investors have been a strong counterbalancing force for FII flows. While FPIs have cumulatively net sold ₹7.8 lakh crore in the past five fiscals amid a weakening rupee, concerns of elevated valuations, geopolitical uncertainties, a strong growth outlook, elevated interest rates in the U.S., and direct and indirect participation of domestic investors have supported the markets.

This strong support is evidenced by the increasing resilience of Indian markets during periods of FPI outflows. For example, in October 2024, despite FPI outflows of ₹1.1 lakh crore, the Nifty50 index corrected by only 6.2% compared to over 23% correction in March 2020, with FPI selling of ₹0.66 lakh crore.