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Individual investors withdrew more than ₹15,000 crore from domestic equities in March — their biggest monthly outflow since 2016, when data first became available.
March, the final month of the financial year, is typically a weak period for retail inflows. However, a market decline to nine-month lows at the start of the month pushed more individuals towards “tax-loss harvesting”.
Barring 2020, 2021, and 2022, retail investors have consistently been net sellers in March since 2016.
Tax-loss harvesting is a strategy where investors sell loss-making investments to offset taxable gains from other investments, thereby reducing their overall tax liability. This approach is particularly useful for those who have seen lower-than-expected returns from their stock holdings.
By strategically selling underperforming assets, investors offset losses against portfolio gains. However, the higher outflows in March 2025 suggest that retail investors may be sitting on larger losses this year, given the market turbulence since September.
“Retail investors have possibly turned net sellers in the cash market (on a direct basis) in recent weeks after being perennial buyers (directly and through mutual funds) for a long time. Institutional investors have been focusing on retail flows for ‘comfort’ about the market, while retail investors may have relied on trailing returns as their lodestar,” Kotak Institutional Equities said in a recent note.
Rahul Ghose, chief executive officer of Hedged.in, said retail investors started selling in March to exit some investment positions and take advantage of the tax benefit of up to ₹1.25 lakh on capital gains.
“The second factor is the break of an important support level at 22,500, which is not ideal for the medium term. It’s also important to note that the 1,700-point upmove in the past two weeks does not signal a trend reversal but rather a relief rally in an ongoing downtrend,” he added.
Chokkalingam G of Equinomics Research said the higher retail outflows this March were also driven by the sharp correction in mid and smallcap stocks during the recent selloff.
“Most retail investors put their money into this bucket. They were sitting on unprecedented losses. Over the past three weeks, markets bounced back, but there were fears the recovery might not last, especially with tariffs coming into effect in April. Investors preferred to book losses now, with some recovery, rather than risk deeper declines. Many also use this period to exit low-conviction stocks and reallocate to high-conviction ones — or stay on the sidelines,” he said.
From their all-time highs at the end of September, the Nifty has fallen 11 per cent, the Nifty Midcap 100 by 14.5 per cent, and the Nifty Smallcap 100 by 17.8 per cent. In early March, all three indices touched their lowest levels since June, while several individual stocks hit multi-year lows.
Retail investor flows could improve in the coming months as small and midcap stocks are expected to outperform largecaps.
“Hundreds and thousands of retail investors are still entering the market. Moreover, small and midcaps offer higher growth and deep-value opportunities, unlike index stocks, where businesses are growing at single-digit rates. Some companies remain unaffected by tariff hikes and rupee depreciation,” Chokkalingam said.
