Retail investors grow wary amid tariff seesaw but analysts remain upbeat

Analysts believe tariffs are part of the story but not the whole of it

Signs of India's retail investors growing wary have begun to emerge as rising market volatility, fuelled by US President Donald Trump's shifting stance on reciprocal tariffs, is prompting many to rethink their investments.

 

Inflows into the equity mutual fund (MF) segment fell for the third straight month in March to ₹25,082.01 crore, the lowest since April 2024, according to data from the Association of Mutual Funds in India (Amfi). Inflows via systematic investment plans (SIPs), although hovering near all-time highs, have reduced marginally for the third straight month.

 

In signs that investors either stopped their SIPs or failed to initiate fresh positions when their existing SIP tenures ended, the SIP stoppage ratio surged to 128.27 per cent in March, according to reports. Meanwhile, direct stock market investment by retail investors turned negative in March, selling equities worth ₹14,325 crore, the highest outflow recorded so far since 2016 when the NSE started recording data.

 

 

According to Nehal Meshram, senior analyst–manager research at Morningstar Investment Research, retail investors' momentum moderated in recent months, driven by a sharp reduction in investments in sectoral and thematic funds due to increased caution. "The escalating tariff conflicts have prompted investors to reassess their risk exposure, leading to a temporary pullback from equity markets," Meshram said.

 

Stock market volatility spiked like never before after Trump announced reciprocal tariffs on April 2. The benchmark indices dropped 5 per cent on April 7, clocking their worst day since June 4 last year, after Trump announced a 26 per cent reciprocal levy on India. However, markets recouped most of these losses in the following days as the Trump administration paused tariffs momentarily.

 

That said, all trading partners will continue to pay a flat duty of 10 per cent. Further, tensions between the US and China are escalating, with the former now imposing a 145 per cent levy on goods from Beijing. 

 

Analysts believe tariffs are part of the story, but there is more. High valuations in the small and midcap space, FII (foreign institutional investor) withdrawals, and recency bias after the September drawdown dampened investor sentiment.

 

The decline in retail participation, according to Nikhil Rungta, co-chief investment officer of equity at LIC Mutual Fund, reflected caution, rather than a concern.

 

Meanwhile, equity net inflows declined in March primarily due to a sharp drop in sectoral/thematic fund inflows from ₹15,000 crore in December 2024 to just ₹170 crore in March, driven by increased market volatility. Retail direct equity investments also fell. However, SIP inflows stayed strong at ₹25,926 crore, reflecting investor discipline.

 

Besides, while retail money has slowed, institutions investing it have been consistent when global funds have pulled out amid tariff uncertainties.

 

Going ahead, with SIP investments still intact, analysts believe the sentiment will settle as confidence hasn't disappeared. With the tariff threat temporarily off the table, and trade talks restarting, one layer of uncertainty has been lifted, they noted.

 

Investor behaviour has evolved significantly in recent years, with greater maturity now evident, Rungta noted. "They're using these periods to rebalance and stick to disciplined investing," he added.

 

Given India's relatively lower reciprocal tariff rates compared to other major trade partners, the medium-term impact of a tariff increase is expected to be net positive. "In specific categories, investors were taking a cautious approach to reduce volatility," said Feroze Azeez, joint chief executive officer (CEO) at Anand Rathi Wealth, adding that current retail investors have a more disciplined approach.

 

Market corrections are normal and India’s long-term growth story remains positive, said Vaibhav Porwal, co-founder of Dezerv. "There will be specific pockets of opportunity, making active wealth management critical," Porwal added.