DIIs pump in over ₹7 lakh crore in CY25, counter ₹2.67 lakh crore FII sell-off

In a year defined by high volatility amid valuation concerns, geopolitical tensions, and trade conflicts, India’s equity markets have witnessed a dramatic reversal of traditional roles. While foreign investors pulled out ₹2.67 lakh crore from the cash segment, domestic institutions infused over ₹7 lakh crore, cushioning volatility and driving the market forward. On a year-to-date basis, the equity benchmark Sensex has risen more than 9%, while the NSE Nifty has gained over 10%, with both indices hitting record highs of 86,056 and 26,310, respectively, on November 27, 2025.

This record divergence also marks a decisive shift in ownership of NSE-listed companies. Foreign portfolio investors (FPIs) now hold just 16.9% — their lowest share in over 15 years as of September 2025. The decline was broad-based, with FPI ownership in the Nifty 50 slipping 43 bps to 24.1% and in the Nifty 500 falling 46 bps to 18%, both at multi-year lows.

As FPI ownership in India Inc receded, domestic mutual funds (DMFs) strengthened their grip on the market. DMFs now hold a record 10.9% stake in NSE-listed companies, 11.4% in the Nifty 500, and 13.5% in the Nifty 50. Their steady rise helped domestic institutional investors (DIIs) — including mutual funds, banks, insurance firms, and other institutions — surpass FPIs for the fourth straight quarter, a milestone achieved after a 21-year gap.

Domestic flows cushion markets as FIIs retreat

As per the NSDL data, foreign institutional investors (FIIs) have pulled out a massive ₹2.67 lakh crore from the Indian cash market over 11 months, registering one of their most aggressive phases of selling in recent years. Their withdrawals were persistent, with the heaviest net selling seen in January (₹87,375 crore), February (₹58,988 crore), and a renewed wave of selling through July to September, each month logging over ₹35,000–47,000 crore in net fund outflows.

On the other hand, DIIs have been consistent remained buyer in Indian equity market, counterbalancing foreign selling by record ₹7 lakh crore fund infusing. They made highest investment of ₹94,828 crore in August, followed by January (₹86,592 crore), and June (₹72,674 crore).

A structural shift, not a temporary trend

Abhinav Tiwari, Research Analyst at Bonanza, said the shift is being driven by a stark divergence in the behaviour of DIIs and FIIs. This is not a short-term anomaly, he noted, but a structural realignment. “It signals a fundamental change where domestic investors have now become the main source of market stability… India’s markets are less vulnerable to global uncertainties and sudden foreign selling, showing that the Indian financial system is becoming stronger and more mature,” he said.

He added that the rising influence of DIIs has made the market significantly more resilient. “In earlier years, even a small amount of foreign selling used to cause sharp 1–2% swings in the indices. However, 2025 has shown a very different trend. For example, in January, FIIs sold ₹72,677 crore — the highest monthly outflow in more than a decade — yet the Nifty fell only about 6% before recovering.”

According to him, this resilience reflects the stabilising role DIIs now play, absorbing foreign outflows in a manner not seen before. “DIIs typically invest with a long-term approach. Mutual funds, pension funds, and insurance companies deploy money over years, not months. This long-horizon strategy reduces volatility and prevents knee-jerk reactions to global events,” he said.

A key factor behind this rising domestic strength is the rapid financialisation of household savings. SIP contributions hit a record ₹29,529 crore in October 2025, total SIP assets climbed to ₹16.25 lakh crore, and active SIP accounts crossed 9.45 crore. Notably, SIP inflows remained steady even during periods of aggressive FII selling early in the year. Insurance companies like LIC have also been major contributors — LIC alone invested over ₹25,000 crore in Q1 FY26 despite mark-to-market pressures — while pension funds such as NPS and EPFO have increased equity allocations following regulatory changes allowing non-government subscribers to invest up to 100% in equities.

In contrast, sustained FII selling reflects multiple headwinds. Indian markets are currently more expensive than other emerging markets, reducing their relative appeal. High US interest rates, earnings downgrades in sectors like midcaps, consumption and IT, and broader geopolitical tensions have added to the cautious stance. However, Tiwari noted that FII sentiment has not been uniformly negative. Select sectors — particularly financials and capital goods — continue to attract foreign interest, indicating areas of ongoing confidence.

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