The silent exodus: Individual investors become net sellers in FY26 in Indian equities

Relentless selling by foreign institutional investors (FIIs) dominated the headlines in FY26. Meanwhile, domestic institutional investors (DIIs) absorbed the pain of FII selling. Between this tug-of-war between FIIs and DIIs, individual investors made a quiet and significant shift in their stance on the Indian markets. According to NSE’s latest Market Pulse report, individual investors turned net sellers of Indian equities in FY26, after being net buyers for six consecutive years.

Investor activity

Source: NSE Market Pulse Report, April 2026

The above table highlights that foreign portfolio investors (FPIs) increased their intensity of selling from ₹1.27 lakh crore in FY25 to ₹2.26 lakh crore, which was entirely absorbed by domestic institutional investors as they bought equities worth ₹8.49 lakh crore. In contrast to FPIs and DIIs, the individual investors had maintained the streak of being net buyers of Indian equities from FY20 to FY25. However, in FY26, individual investors became net sellers on Indian equities for the first time in six years, offloading equities worth ₹5,803 crore on a net basis in the secondary market. Even after accounting for primary market issuances, the total investment declined to ₹36,805 crore, sharply lower than ₹1.59 lakh crore in FY25.

The sharp shift in the stance of individual investors warrants a deep dive into the key factors behind it.

Market factors

The report highlights that the reversal in the investor sentiment was driven by factors such as elevated market valuations that prompted profit booking, and bouts of geopolitical uncertainty also dampened risk appetite. The second half of FY25 and the whole of FY26 were quite eventful, as they brought high volatility across the global markets. The imposition of global tariffs by the US, the impact of which was yet to be ascertained, followed by the risks of a global recession and the impact of new AI models were among the key worries for individual investors.

Economic factors

FY25 and FY26 also witnessed a sharp change in major economic policies and conditions in the economy. The 2024-25 budget saw a hike in LTCG and STCG taxes, which soured the investor sentiment further in an already wobbly market scenario. In the latest budget, the government also hiked the securities transaction tax on derivatives, which also disappointed derivative traders. Further, the removal of indexation benefit on unlisted shares and hike in taxation for buybacks were also mood dampeners for individual investors.

Alongside the reforms, a high-interest rate scenario for the majority of FY25 and FY26 made debt instruments more attractive with higher yields, in comparison to wobbly returns of equity investments.

Gold and Silver rush

Gold and silver were the top gainers among all asset classes in FY25 and FY26. Gold delivered 41.1% returns in FY25 and 47.9% in FY26. Silver outperformed gold in FY26 by delivering 135% returns in the domestic markets. The resurgence of safe-haven assets like gold and silver led to a flight of capital from equities to gold and silver. Silver ETFs were among the top 10 securities that saw their turnover jump 177x in FY26. Consequently, gold ETFs saw their AUM (assets under management) soar from ₹31,224 crore in FY24 to ₹1.71 lakh crore. Similarly, silver ETFs saw their AUM increase from ₹5,200 crore to ₹79,805 crore. This highlights the fact that the incremental investment was diverted to gold and silver ETFs, away from equities.

Recency bias

Investor psychology often revolves around recency bias, it simply means the decisions made are influenced or driven by recent events or outcomes. If we look closely, all the above factors have one common thread between them, and that is recency bias. The geopolitical environment defined the risk appetite for individual investors. A shift to gold and silver investment due to high returns highlights how individual investors base their investment decisions. The primary reason for this misconception is a lack of knowledge and experience. Individual investors lack the skills to spot opportunities and sail through storms. A vast majority of the investors in the market entered during the bull run that started in 2020. Hence, they did not see a dull period in their investing journey until 2025. Investing decisions that are primarily based on past returns often create wrong expectations.

Have individual investors parted with equity investments?

Investors have been dismayed by returns in the recent past, which led them to trim the direct equity exposure. But they have maintained their discipline in indirect investments in Indian equities. Systematic investment plan (SIP) investments remained resilient throughout the turbulent period as cumulative SIP inflows scaled an all-time high level of ₹3.5 lakh crore in FY26. The number of SIP registrations rose by 7.2 crore in FY26, taking the total SIP accounts to 10.5 crore. However, 6.8 crore accounts also discontinued their SIPs in FY26, which in itself is a worrisome phenomenon. Is it the start of a similar trend in mutual fund investments? This can be assessed in the coming quarters if a high number of SIPs are discontinued.

Will individual investors return to equities?

While an exponential surge in retail participation is often hailed as the new backbone of Indian capital markets, the recent flight of investors away from equities questions their foundational preparedness for investing. Too often, investment decisions are based on a mirage of past returns, leaving individual investors ill-prepared for the psychological toll during the downturn. Whether individual investors view the recent correction as a strategic entry point or continue with their outflow will determine their conviction in India’s long-term growth story.