Mumbai (Maharashtra) [India], June 23 (ANI): 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, according to a report by JP Morgan.

Initiating coverage on India's capital markets sector, JP Morgan said that 'India's capital-markets story remains fundamentally driven by SIP-led financialization, despite weak equity returns.'

The report highlighted 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. 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, with monthly industry SIP flows rising 48 per cent year-on-year to Rs 310 billion in May 2026.

'Monthly industry SIP flows are up 48 per cent to Rs 310bn (USD 3.3bn) in May 2026, and cumulative equity and balanced fund net inflows were Rs 9.43tn (USD 109bn),' the report said.

JP Morgan expects inflows into the capital markets ecosystem to remain strong, supported by favourable tax and policy measures.

'The inflows should continue due to tax and policy,' the report noted.

According to the report, SIPs have emerged as the primary driver of domestic equity investments and now account for a significant share of industry inflows.

'SIPs have become the sector's demand anchor, contributing 77 per cent of total equity and balanced net inflows in FY26, with monthly flows reaching Rs 310bn in May-26,' it said.

The report added 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 pointed to structural growth in trading activity across exchanges. It noted that exchange volumes have increased substantially over the years, driven by index options, weekly expiries and higher participation from retail and algorithmic traders.

'Exchange volumes have scaled structurally, led by index options,' the report said, adding that industry average daily premium turnover rose from Rs 10 billion in FY14 to Rs 699 billion in FY26.

On sector preferences, the brokerage said its stock selection is based on business-model quality, regulatory exposure and valuation metrics.

'Our stock selection reflects business-model quality, regulatory exposure, and valuation; we prefer: Angel One > CAMS > ICICI AMC > NAM > HDFC AMC,' the report stated.

JP Morgan said 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 maintained a positive view on the sector but flagged 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, SIP inflows staying below Rs 250bn; adverse regulatory changes resulting in 20 per cent lower ADPTVs or cancellation of weekly expiries; and futures/premium turnover >15 per cent above assumptions on a sharp rise in volatility,' the report said. (ANI)