Indian equity markets witnessed a notable improvement in the quality of investor participation during FY 2025-26, with market activity increasingly driven by long-term ownership rather than speculative intraday trading, according to the Securities and Exchange Board of India's latest annual report.

SEBI reported that delivery-based trading gained significant traction during the year. The delivery-to-traded quantity ratio across the National Securities Clearing Corporation Limited (NCL) and Indian Clearing Corporation Limited (ICCL) increased to 29.3 percent from 23.6 percent in the previous financial year, while the delivery-to-traded value ratio rose to 27.4 percent from 24.4 percent. The regulator said the trend reflects a growing preference among investors for asset ownership instead of short-term speculative trading.

The improvement in delivery participation came despite a moderation in cash equity market activity. Total cash equity turnover declined 6.8 percent year-on-year to Rs 280 lakh crore, largely due to elevated market valuations and a partial shift in retail investments towards gold and silver. However, investor participation continued to expand, with the total number of demat accounts rising to 22.5 crore, supported by simplified digital onboarding and broader financial inclusion.

The equity derivatives segment presented a contrasting picture. While combined notional turnover increased 4.3 percent to Rs 1,10,418 lakh crore, the total volume of options contracts declined sharply by 51.5 percent during the year. SEBI attributed this divergence primarily to regulatory changes, including higher contract sizes, rationalisation of weekly expiry contracts, mandatory upfront collection of option premiums, and an increase in the Securities Transaction Tax. These measures resulted in fewer contracts being traded, although each contract represented a larger notional value.

According to the regulator, the reforms were introduced to reduce excessive retail speculation and create a more resilient, orderly, and risk-aware derivatives market without compromising its role in hedging, liquidity, and price discovery. Additional safeguards implemented during the year included intraday monitoring of position limits and restricting weekly options contracts to a single benchmark index for each stock exchange.

The impact of these measures was also reflected in index options trading patterns. The Nifty 50 accounted for 93.1 percent of NSE index options turnover during FY26, compared with 45.4 percent in the previous year, while Bank Nifty's share declined to 6 percent from 34.8 percent as trading activity consolidated into a single weekly benchmark index.

Domestic institutional investors continued to provide strong support to Indian equities throughout the year. Net inflows by domestic institutional investors reached a record Rs 8.5 lakh crore, comfortably offsetting foreign portfolio investor equity outflows of Rs 1.8 lakh crore. Mutual funds contributed Rs 6.4 lakh crore through sustained systematic investment plan inflows, resulting in domestic institutional ownership of NSE-listed companies rising to a record 17 percent. In contrast, foreign portfolio investor ownership declined to a 15-year low of 15.8 percent.

Overall, SEBI stated that the rising share of delivery-based trading, moderation in speculative derivatives activity, and growing domestic institutional participation collectively indicate a healthier and more sustainable market structure, with investors increasingly favouring long-term ownership over short-term speculation.