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On equity flows, Jain said past cycles show retail inflows tend to moderate when three-year returns turn zero or negative. “If another year goes by, then you could see some moderation,” he said, though he credited regulators and mutual funds for educating investors about long-term equity investing. He added that the primary market is currently the biggest source of new stock, while foreign selling hardly matters now because domestic flows — around ₹5 lakh crore annually across mutual funds and other channels — dominate the market.
Jain said market conditions are being shaped by a surge in retail participation. The number of demat accounts has jumped from three crore pre-COVID to 20 crore today. He noted that the 17 crore new investors had no market history, and many entered after small- and mid-cap stocks had fallen sharply in 2020. As those categories rebounded the most, he said, “7 out of 10 investors have experienced these high returns” and may be “wrongly extrapolating” them.Also Read | Multi asset funds emerge as the new entry point for first-time investors: Axis MF’s Sivakumar
Jain said many popular themes have business merit but lack investment merit. He expects large caps to outperform small- and mid-caps, partly because “all the supply is in non-Nifty stocks.” He said he likes large banks, insurance, pharma, automobiles and even software, but is cautious on consumer staples, white goods, brown goods, retail, tobacco, telecom, and oil and gas utilities.
Describing the current market dynamics, Jain used a film reference attributed to actor Ajit: “Isko liquid oxygen me daal do. Oxygen isko marne nahi dega aur liquid isko jeene nahi dega.” He said today’s markets feel similar — strong inflows prevent the market from falling, while a steady supply of IPOs prevents it from rising.
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