Retail investors turn net sellers of Indian equities for two straight quarters

The selling from retail investors has also translated to net inflows into domestic mutual funds, which saw only 15 percent of the full year's equity inflows for the December quarter. The quantum of mutual fund purchases has declined over the last two quarters and has halved since the September quarter, according to the JPMorgan data.

While domestic investors have been sellers in stocks like L&T and HCLTech during the December quarter, they become part of the buying list of foreign investors. On the other hand, FIIs have been sellers in financial names like ICIC Bank, Bajaj Finance and IndusInd Bank.

JPMorgan also said that there is little incentive for retail to return as the average daily market turnover for the December quarter is 27 percent lower than the September quarter, with the non-institutional portion declining 40 percent.

The note further says that while Nifty 50's valuations may have fallen from 20.4 times in 2022 to 18.1 times currently, they may have not hit a floor just yet.

"Trailing market returns are meagre even as fixed income rates are moving up – there is little reason for individual investors to come back to the market near term, we think. This can hurt mid-cap valuations," the note said.