Indian equities may have fallen sharply in early 2026, but the cash market did not freeze. On the contrary, trading activity increased. In fact, trading activity rose.
The average daily turnover (ADT) in the cash market climbed from ₹1.02-lakh crore in December 2025 to ₹1.35- lakh crore in March 2026, even as benchmark indices corrected about 15 per cent. Such resilience during a sell-off was last seen during the Covid-led market crash.
The difference this time lay in who was driving the trade. Foreign portfolio investors (FPIs) pulled out nearly ₹1.3-lakh crore in the first three months of 2026, but mutual funds pumped in about ₹1.5-lakh crore, helped by steady SIP flows. The result was a market correction without the usual collapse in cash-market activity, unlike the previous three corrections (see table).
In fact, the cash market strength continued even after broader equity sentiment recovered. Cash ADT stood above ₹1.4-lakh crore in both April and May, hitting a two-year high. This indicates that the turnaround was not confined to the correction phase alone. For the January-May period, FPI outflows and mutual fund purchases stood at ₹2.25- lakh crore and ₹2.44-lakh crore, respectively.
Institutional MOVES
The latest episode also highlights a structural change in market ownership. During the Covid sell-off, foreign investors remained the dominant force in the market. Over the years, however, domestic institutions have steadily increased their presence. The shift became evident by March 2025, when domestic institutional investor (DII) ownership surpassed that of FPI.
The DII share of ownership in Nifty 500 companies expanded from 14.9 per cent in March 2020 to 20.9 per cent in March 2026, an all-time high. Meanwhile, the FPI share dropped from 19.9 per cent to a new low of 17.1 per cent during the same period.
The growing influence of domestic investors is also evident in their buying firepower. During the Covid-led sell-off, mutual funds invested a net ₹41,304 crore in equities between January and March 2020. In comparison, net investments by mutual funds during the first three months of 2026 stood at ₹1.53-lakh crore, nearly four times higher. For the January-May period, the figure rose to ₹2.87-lakh crore. This jump underscores the larger role domestic institutions now play in absorbing selling pressure during market corrections.
The resilience in turnover has also been aided by a revival in participation among non-institutional investors, particularly in the small- and mid-cap segments. Activity in these pockets had slowed during the correction but has since picked up.
“Small- and mid-cap stocks are seeing greater participation from non-institutional investors. Activity in these segments had fallen earlier but has picked up in recent months. That has helped support turnover in the cash market,” said Deepak Jasani, an independent market veteran.
Derivatives GAME
Interestingly, the resilience in the cash segment stands in contrast to developments in the derivatives market.
While cash market ADT rose during the correction, derivatives turnover remained below the levels seen before SEBI tightened norms in the F&O segment. Average daily derivatives turnover across exchanges declined from ₹472-lakh crore in December 2025 to ₹462-lakh crore in May 2026. However, it has recovered significantly from the low of ₹296-lakh crore recorded in December 2024, shortly after the new regulations came into effect.
The sharp decline in late 2024 followed SEBI’s measures aimed at curbing excessive speculation, including higher contract sizes for index derivatives and other changes to the trading framework. Since then, market participants have gradually adapted to the new environment.
“Traders have tweaked their systems and processes to better suit the new conditions they are operating in,” says Jasani.
The recovery, however, has not been uniform across participants. According to Feroze Azeez, Joint CEO of Anand Rathi Wealth, smaller traders have been affected the most. “The most impacted category has been retail or individual traders, particularly those trading small-sized contracts with limited capital. The higher minimum contract sizes have effectively raised the entry barrier,” Azeez says.
Published on June 20, 2026
