India’s benchmark indices have shown very little sign of volatility despite steep tariffs being levied by the United States, largely due to its robust middle class. At a time when foreign investors were withdrawing from India’s stock markets, it was the retail investors who kept the Dalal Street afloat. The two main stock indexes have grown by 10% in the last six months despite the tariff threat, a report in New York Times said.
Indian investors are now stepping in as the backbone of the stock market, investing heavily even as foreign investors pull their money out, providing stability to India’s businesses and economy.
Harsha Upadhyaya, mutual fund manager at Kotak Mahindra Asset Management, told the NYT that foreign ownership in India’s stock markets has shrunk significantly over the past decade, from 24 percent to roughly 16 percent today.
“The flows used to be dominated by foreign institutional investors, and that’s when their view mattered a lot,” Upadhyaya said.
Domestic Investors Become the Pillar of India’s Stock Market Resilience
As foreign investors retreat from India’s stock markets, it is the country’s homegrown institutional and individual investors who are now playing a crucial role in stabilising the market. Mutual funds, insurance companies, and retail investors are increasingly dominating the investment landscape, reducing India’s reliance on foreign capital.
Today, Indian individual investors no longer follow global market trends or chase returns based on decisions by international money managers. Instead, many have automated monthly contributions to Indian mutual funds, focusing on long-term growth and economic stability, the report said.
Why Foreign Capital Is Exiting Indian Markets?
A key factor driving foreign capital away from Indian equities is the remarkable recovery of Chinese stock markets, with Hong Kong’s benchmark index surging over 21% since April. Meanwhile, India faces growing economic challenges due to the tariffs imposed by the Trump administration, half of which has been aimed at penalising India’s purchase of Russian oil.
These tariffs have already hit Indian exporters hard, especially companies serving the US market and the millions of workers they employ. Additionally, India’s ambitions to emerge as a manufacturing alternative to China are under threat, as the tariffs make the country a less attractive destination for exporters. The perceived rift in Indo-US relations further raises concerns among investors.
Government Support Bolsters Domestic Confidence
Recognising these risks, the Indian government has taken steps to support exporters and stimulate domestic economic activity. Last week, the Finance Ministry announced a simplification and reduction of GST tax rates to spur consumer spending and offset export losses.
Such policy moves strengthen confidence among India’s burgeoning middle-class investor base, which continues to expand rapidly. By this summer, the number of individual brokerage accounts had crossed 200 million — about one for every seven Indians — leaving considerable room for further growth.
The Financialisation of India’s Savings
Vaibhav Sanghavi, CEO and fund manager at ASK Hedge Solutions in Mumbai, refers to this growing trend as the “financialisation of India’s savings.” He explains, “Money that used to be plowed into real estate or physical gold is now being put in the stock market.”
This shift benefits India’s publicly listed companies, which remain insulated from the heavy impact of export disruptions affecting medium and small manufacturers.
