Among these stocks, Reliance Infrastructure, where retail investors hold about 45%, fell 13% between June 2024 and December 2025. Olectra Greentec fell 34% during the same period, and Tata Technologies fell 36%. That said, not all stocks in the basket underperformed: HBL Engineering and Anand Rathi Wealth stood out with gains of 69% and 54% respectively.Crucially, the brokerage warned that the valuations of many of these narrative stocks remain disconnected from underlying fundamentals, even after recent corrections driven by growth failures or turnaround stories.
“These stocks are likely to lose a significant portion of their market capitalization over time, potentially extending the period of weak returns for retail investors,” the report said.
Indian markets are said to be the worst performing in the world in 2025, and the start of 2026 has been anything but good. Nifty has already lost over 2% this year, driven by the continued exits of foreign investors that started early last year.
Even returns through institutions have remained uneven in recent months. The brokerage said direct equity holdings of retail investors, as well as investments routed through mutual funds (MFs) and portfolio management services (PMS), have lagged benchmark indices and tested investors’ patience amid a prolonged phase of time correction in the broader market. According to the report, equity-oriented mutual fund investors are likely to have earned very modest returns between July 2024 and December 2025, even though this period accounted for almost 53% of the total equity MF flows mobilized between CY22 and CY22. CY25.
The broker points out that this is in stark contrast to the positive returns delivered by the major indices in the same period. Kotak Equities noted that a retail investor would have had to invest consistently since September 2022 to achieve a XIRR above 13%, even before factoring in fees and taxes.
The report also highlighted that the underperformance was driven by weak returns in key MF sub-segments. Mid-cap, small-cap and thematic funds – which have attracted the bulk of inflows over the past two years – have delivered returns on par with or worse than overall equity funds over the past 18 months. This difference between flows and performance underlines a growing disconnect between investor expectations and realized results.
Portfolio Management Services (PMS) also offered little relief. Kotak Equities’ research on the top 20 PMS strategies by assets under management shows that only a few schemes have delivered meaningful returns in the past year. However, PMS products continued to attract strong inflows.
The broker warns that prolonged underperformance could threaten future inflows, especially as investors place more emphasis on risk-adjusted returns.
In terms of direct equities, the report highlights that retail AUM in NSE-listed equities has remained broadly stable at around Rs 43 lakh crore over the past 18 months. While private equity assets under management grew at a CAGR of about 15% from 2021 to 2025, most of this growth was concentrated between March 2023 and June 2024. Since then, private equity participation has cooled, reflecting caution amid uneven stock performance.
On a broader level, the findings are worrying. While market indices have remained robust, outcomes for retail investors have lagged significantly, due to challenges in timing, stock selection and excessive exposure to high-risk segments. Kotak Equities warns that this disconnect between market perception and portfolio reality could increasingly strain retail confidence if performance does not recover in the coming quarters.
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