The Saviour of Indian Equity Markets! Circa 2025

  •   Mon, Jan 05 2026
  •   By David Pinto Prabhu

January 5, 2026

2025 was the year of many misses at the capital markets in India. The liquidity God, the Foreign Portfolio investors (FPIs) were found missing in the secondary market only to be detected romanticizing in the IPO market. FPIs sold a record Rs 2.34 trillion in the secondary market (the place where buying & selling of listed shares happen) and purchased Rs 73,749 Crs in the primary market (the place where new shares are listed, IPO market). The message was clear from the FPIs, I like you, but I don’t love you. They did find other emerging markets more fine-boned & good looking than India. China, Taiwan & South Korea being the sweethearts for 2025.

The more deafening blow was the Foreign Direct Investment (FDI) outflows that we witnessed in India in 2025. Even though the net FDI figure remained positive, we saw Allianz walking out from its partnership with Bajaj (outflow of 2.6 billion USD), foreign promoters encashing through IPOs, namely, Hyundai (Rs 27,870 Crs), LG (Rs 11,700 Crs), ICICI Prudential AMC (Rs 10,600 Crs) amongst others. Everyone seems to be encashing the good fortune amassed in India.

If this was all true in its practical sense, then why did the markets not collapse? A similar situation, when the FPIs exited during the Global Financial crisis in 2008, the Nifty lost 60% from its peak. But in 2025, the Nifty still delivered a modest 9%. The saviour during the outflows in 2025 was the local domestic institutional investor (DIIs). Yes, you & I. DIIs comprise majorly of the Mutual Fund (MF) industry, Insurance companies, local pension funds, Banks and other institutions that invest in Indian equities. The MF industry is around 70% of the DIIs in India. So today, I will share some lesser-known facts on our MF industry.

The present generation is all aware of MFs, the ones born in the 70’s & the 80’s are investing in it, the ones born in the 50’s & the 60’s may not have done the needful then, citing that MFs are of a recent spectacle. You will be pleasantly surprised to know that the Mutual Fund industry was in existence in India way back in 1964. Yes, the first MF was launched under the banner Unit Scheme 64 (US 64) by Unit Trust of India (UTI). It was launched in the backdrop of a lull stock market, just bulldozed by taxation introduced on dividends & a nation coming to terms from the debacle at the border with China. However, the real reason for the hastened launch, being that, the then Finance Minister, T. T. Krishnamachari, had heard about a rumour that Pakistan was about to launch its first Mutual Fund!

US 64 was a tool for the Government to garner investments from smaller investors, propel the capital markets and also build a career for the broking community. Unfortunately, US 64 was not run like how MFs are run today. No regulator, no compliance then, it was a mere tool for the Government. The fund was given a forged protection from the market forces. The volatility of the equity markets did not bother the NAV of the fund. The fund was delivering assured dividends and redemption proceeds were guaranteed like a fixed deposit. The NAV was moving up constantly and consistently without any relevance to the market movements. This finally collapsed and the Government had to bail out the ailing US 64 in 1998.

More often, we as investors would like to see our portfolio valuation going up and only up. For an MF investor it implies a rising NAV at all points of time. This sounds rosy and nice, but it is not the right thing. US 64 collapsed because of the Government, then promoting the fund as a savings tool rather than letting the market forces affect its NAV. A constant rising graph on the equity market graph is a greater concern than a constant declining graph. The only right thing for the investor is the graph denoting volatility. Volatility on an ECG signifies life, a straight line, death.

It was only in the late 1980’s and early 1990’s we saw public sector banks’ like SBI, Canara Bank, Indian Bank, Bank of Baroda, Punjab National Bank entering the fray to launch MFs. They set up Mutual Funds like SBI, setting up the Magnum Fund, Canara Bank, Can Bank MF and so on. Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC), the insurance giants also set up shops under the MF banner then.

SEBI, the regulator was established in 1992 and all MFs other than UTI came under its purview. The erstwhile Kothari Pioneer was the first private sector MF to be registered. With the entry of private sector funds in 1993, a new era began in the Indian MF industry, giving the Indian investors a wider choice of MF products. The initial SEBI MF Regulations were revised and replaced in 1996. This was then followed by the arrival of MNCs in the late 1990’s and early 2000’s who bought in their own best practices. Few MNCs went solo; few struck a deal with an Indian partner. The majority of the ones who partnered grew exponentially.

Today the MF industry is not only well regulated, it is also turning out to be a favoured solution for investors. From the days of being perceived as an unwanted risky option, today it has gained acceptance. For the first time investor in equity markets, it is prudent to invest via an MF, rather than approaching the stock market directly. If someone is approaching the market directly, he/she needs to identify the best one from a choice of 5,000 plus stocks. Yes, there are more than 5,000 stocks listed in India. When you invest in a MF, you have the professional service of a fund manager who buys and sells on your behalf.

Investing in MFs does come with risk and the only solution for overcoming this risk is to hold on to your investments in equity MFs for a longer time. Well, there is no definite period to define long term, but ideally it should be at least a 5-year plan. Approaching the markets with SIPs is even better. It spreads the risk over different market levels and time periods.

Most investors choose equity MFs to beat inflation. Inflation being a silent killer. And the sad part is you realise this when you are literally on your deathbed. One has to generate inflation beating returns to remain solvent and happy! We live in an era where televisions have become cheaper over the decade and haircuts are turning out to be expensive. You have no clue what’s going to be the cost of educating your children. I for one got graduated with the best facilities for just Rs 3,500, yes for all the three years put together. I could not say similar things when I had to shell out Rs 50,000 when my son joined a play school at Bangalore. I, for a fact cannot control the rise in prices of goods & services, but I can definitely put my money to work to earn more. I cannot compromise on my favourite food nor the drink! For that we need to take risk, the risk being witnessing volatility in the value of your investments. Risk cannot be eliminated; however it can be regulated, it can be managed. And the best way to beat volatility is to make friends with it. After all, what is life without volatility? Quite boring for me, for sure!

 

 

 

 
By David Pinto Prabhu
David Pinto Prabhu, Partner at Fisdom Private Wealth, is on a mission to simplify the clutter surrounding the dynamic nature of investments. He has over 20 years of experience in the field of investments. After starting his career with ING Investment Management (2004), he moved to J P Morgan Asset Management (2008), and was heading South India for its institutional business. He holds a PGDM degree from St Joseph’s College of Business Administration, Bengaluru, and a B Com degree from St Aloysius College, Mangaluru, where he is currently based. David can be contacted on LinkedIn: linkedin.com/in/david-pinto-29037a33 and Email: davidcasmir@gmail.com.
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Comment on this article

  • Rudolf Rodriguez, Mangalore

    Tue, Jan 06 2026

    Nice writeup on the evolution of DIIs and mutual funds in India! Contrary speaking, the Big question to ask is, is it a good sign when there is large scale selling by FIIs & the DIIs & MFs pumping in public money into the markets like there is no tomorrow; majority of the holdings have been distributed into the hands of small retail investors, which is considered a big redflag for the future of the markets! Majority retail investors are trapped with haircuts of 25% upwards; it's very clear that the indexes are being propped up to show that everything is hunky dory while majority of stocks are much below their 52 week highs & regarding our regulator, the less spoken the better; lots of hanky panky operations going on right under it's nose (I could give n numberof examples)! I do not want to delve into this subject further for obvious reasons!


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