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Retail investors are no longer fleeing volatility; they are emerging as key shock absorbers for Dalal Street. These mom-and-pop investors have stepped in even as markets faced heavy selling pressure amid the US–Israel–Iran war-led rout.

This contrarian pattern has emerged in a Mint analysis of daily flow data since the onset of the West Asia conflict on 28 February. While retail activity fluctuated, individual investors turned net buyers during periods of acute volatility.

Out of the 13 trading sessions analyzed, for which data was available, the headline index Sensex retreated on eight occasions; retail participants absorbed the downside in five of them. This was most pronounced during the 19 March rout—the deepest single-day correction in over 20 months—when benchmarks plummeted over 3%, on private bank-led weakness. On that day alone, retail investors infused ₹6,729 crore, significantly cushioning the broader risk-off selling pressure. The comparable data for their overseas counterparts was not available for this particular date.

The journey to this ‘buy-on-dips’ conviction, however, was non-linear. The initial shock of the conflict on 2 March saw retail nerves fray, resulting in a net outflow of ₹3,509 crore as investors pivoted to caution. It was only after this brief period of selling that retail flows pivoted, transitioning from early panic to the aggressive accumulation seen during the mid-month lows.

Though this is not a one-off event. A similar trend was seen on 4 June 2024, when markets fell more than 5% in a single session, reacting to election result uncertainty and a sharp shift in market expectations. On that day, retail investors invested ₹21,178 crore, highlighting their growing role in supporting markets during periods of stress. In stark contrast, foreign portfolio investors (FPIs) were aggressive sellers, offloading a net ₹12,511 crore in the same session.

Despite this aggressive buying on sharp declines, retail flows through the current episode have not been unidirectional. Of the 13 trading sessions since the conflict began, retail investors were net sellers on eight occasions and net buyers on five.

However, the intensity of buying during market falls has outweighed the selling phases. As a result, cumulative retail flows remain firmly positive, with net inflows of ₹5,987 crore during the period.

The underlying behaviour reflects a broader shift in investor mindset, driven partly by the expansion of India’s retail investor base and the growing popularity of systematic and long-term investing approaches.

“A lot of new and old investors are being told that when the market falls, it’s a good time to buy. This ‘buy on dips’ behaviour isn’t new, but it’s happening at a much larger scale now because the base has expanded,” said Anand K. Rathi, co-founder of Mira Money.

He cautioned, however, that such strategies come with risks if not backed by the right investment horizon. “The issue is not about buying; the issue is about the potential for panicking the moment they see more correction. If that were to happen, we could see sharper corrections when FPIs sell, and domestic institutional investors (DIIs) also turn cautious,” he added.

Retail flows have contrasted sharply with foreign investor behaviour. Since tensions escalated, FPIs have pulled out about ₹79,066 crore from Indian equities, amid global risk aversion, rising US bond yields, and a stronger dollar.

DIIs, however, have provided a strong counterbalance, investing nearly ₹1 trillion during the same period. Along with retail investors, they have absorbed a significant share of these outflows, helping limit market downside.

The trend points to a broader shift, with domestic liquidity increasingly acting as the first line of defence for Indian equities.

“FPI outflows are largely driven by global risk-off triggers. But this time, strong domestic flows—supported by steady SIP inflows of ₹18,000–20,000 crore and institutional money—have helped stabilize markets. Retail investors are also showing maturity through staggered buying rather than panic selling,” said Akshat Garg, head-research and product at Choice Wealth.

He added that while domestic flows can cushion volatility, their sustainability depends on global conditions and earnings support. “They can smooth volatility, but cannot fully replace foreign capital in extreme scenarios,” he said.

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