The Indian stock market has suffered severe losses for retail investors as the small-cap shares they preferred have fallen more than institutional investments.
Bloomberg data shows that stocks in the NSE 500 with more than 20% retail ownership are down 45% since their peak.
Comparatively, shares with comparable stakes owned by domestic institutional investor (DIIs), have fallen by 34% while those that are backed by international institutional investors have decreased by 29%.
Retail investors are hurt by panic selling and margin calls
Retail-dominated shares have fallen by a much greater percentage than benchmark indices Nifty and Sensex.
The mid and small cap indices are now in bearish territory after falling nearly 20% since their peak.
Ajit Mishra is Senior Vice President for Research at Religare Broking. He attributes retail investor losses to margin calls and panic sales.
He said that stocks owned by DIIs and FIIs tend to do better during corrections, because institutions are more likely to step up to purchase them.
Small-caps remain popular with retail investors
Retail investors are still aggressively investing in small-cap stocks despite the current market turmoil.
Retail holdings of small-cap firms were at Rs 10,3 trillion in the quarter ending December 2024, which was the largest apart from the promoters stakes.
Primeinfobase.com data shows that retail investors have a record-high of 26.65% in small-cap stock, while FIIs, DIIs, and DIIs each hold 21.36 and 24.95 percent.
Retail investors only hold 12.25% of large-cap firms, as institutional investors are the dominant owners.
Why do retail investors experience the most pain during downturns in markets?
G Chokkalingam is the founder of Equinomics Research & Advisory and head of research. He observed that it’s always retail investors who suffer most in market slumps.
Chokkalingam says that most investors are influenced by the stock market momentum in a bullish market.
Globally, this trend is observed across all market cycles and affects both superior stocks as well as low-quality ones.
In many cases valuations, growth and profits are low, companies lack sustainability, and governance problems exist within them.
Chokkalingam said that while market corrections are common, quality stocks tend to decline more slowly than inferior ones.
Recovery strategy
Experts believe that the recovery of the market depends on the stock quality.
Kranthi bathini, director of equity strategy at WealthMills Securities emphasized the fact that in the end, stock prices follow earnings.
He said that “in the end, stock price is slave to earnings,” adding that stock prices will likely rebound if outlooks for earnings remain positive.
Retail investors should carefully evaluate their position if the earnings outlook is uncertain.
He stressed to traders the importance of stop-loss as an important risk management strategy.
Mishra also suggested that, if an asset has solid fundamentals but is down only because of market sentiment, then it might be worth taking averaging.
He recommended that companies with poor financials, debt or bad management be cut off.
Retail investors are vulnerable due to lack of institutional support
According to National Securities Depository Ltd. data, in 2025 foreign portfolio investors sold Rs. 1.4 trillion net, the lowest start of any year.
In contrast, during the same time period, the domestic institutional sector bought stocks worth Rs. 1.7 trillion, which cushioned the market against further decline.
Retail investors are the biggest shareholders in smaller companies. However, their lack of institutional support makes them vulnerable to volatility.
Retail investors should adopt a disciplined strategy, focussing on stocks with strong fundamentals and avoid speculative investments to survive future market fluctuations.
The post Indian Retail Investors Suffer Most in Current Market Downturn: Here’s Why may be updated as new information becomes available
