A report by JP Morgan has stated that India's capital markets story continues to be driven by strong inflows through Systematic Investment Plans (SIPs), despite subdued equity market returns and sustained foreign investor selling. The report, which initiates coverage on India's capital markets sector, highlights that the Nifty 50 has delivered a two-year compound annual growth rate (CAGR) of just 0.8 per cent in rupee terms and minus 3.2 per cent in US dollar terms.
FPI Selling and Domestic Resilience
During FY25 and FY26, foreign portfolio investors (FPIs) sold Indian equities worth about USD 36 billion (Rs 3.3 trillion). However, domestic retail participation has remained resilient. Monthly industry SIP flows rose 48 per cent year-on-year to Rs 310 billion in May 2026, according to the report. Cumulative equity and balanced fund net inflows stood at Rs 9.43 trillion (USD 109 billion).
JP Morgan expects inflows into the capital markets ecosystem to remain strong, supported by favourable tax and policy measures. The report notes that SIPs have become the sector's demand anchor, contributing 77 per cent of total equity and balanced net inflows in FY26.
SIPs as the Demand Anchor
The report highlights that the resilience of SIP inflows demonstrates the growing "set-and-forget" investment behaviour among retail investors, which has continued despite market volatility and muted benchmark returns. JP Morgan also points to structural growth in trading activity across exchanges, driven by index options, weekly expiries, and higher participation from retail and algorithmic traders.
Industry average daily premium turnover rose from Rs 10 billion in FY14 to Rs 699 billion in FY26. The report states that exchange volumes have scaled structurally, led by index options.
Sector Preferences and Risks
On sector preferences, JP Morgan said its stock selection is based on business-model quality, regulatory exposure, and valuation metrics. The brokerage prefers Angel One, CAMS, ICICI AMC, NAM, and HDFC AMC in that order. Exchanges and depositories are likely to benefit from stronger pricing power and operating leverage, while low-cost retail brokers could gain from scale. Asset management companies (AMCs), although supported by rising assets under management, may face constraints on operating leverage due to regulatory limits on total expense ratios (TERs).
The report maintains a positive view on the sector but flags certain risks. These include SIP inflows falling below Rs 250 billion for a sustained period, adverse regulatory actions affecting derivatives trading activity, and a sharp rise in market volatility. Key risks include SIP inflows staying below Rs 250 billion, adverse regulatory changes resulting in 20 per cent lower ADPTVs or cancellation of weekly expiries, and futures/premium turnover more than 15 per cent above assumptions on a sharp rise in volatility.
