For the first time in over a decade, domestic institutional investors (DIIs)—comprising mutual funds, insurance companies, and banks—have overtaken foreign portfolio investors (FPIs) in terms of equity holdings in Indian companies listed on the National Stock Exchange (NSE).

As of the March 2025 quarter, DIIs held 16.9% of the total outstanding equity, edging past the 16.8% held by FPIs. This marks a milestone shift in market dynamics, highlighting the rising influence of Indian investors in their home markets.

The data, compiled from the Ace Equity database, indicates that assets under custody (AUC) of domestic holdings reached approximately ₹69.8 lakh crore, while foreign holdings were slightly lower at ₹69.6 lakh crore.

Rise of Domestic Confidence: Key Drivers

This shift is not merely statistical but a result of structural maturity in India’s investment landscape. Three key factors have contributed to this development:

• Systematic Investment Plans (SIPs) into mutual funds have seen consistent monthly inflows, driven by increased retail awareness.

• Retail investors are becoming more active participants in India’s capital markets, enabled by easier access through digital platforms.

• Insurance companies and banks have broadened their exposure to equities as part of diversified portfolio strategies.

This rising domestic participation has not only offset FPI outflows but also brought in a degree of stability and resilience to Indian equity markets.

FPI Exodus Amid Valuation Concerns

While DIIs were increasing their exposure, foreign investors were reducing theirs. Between October 2024 and February 2025, FPIs sold Indian equities worth ₹2.3 lakh crore. This was largely attributed to:

• Stretched valuations of Indian equities relative to global peers

• Subdued corporate earnings growth, especially in export-linked sectors

• Geopolitical concerns and interest rate uncertainties in Western markets

These concerns led to a steady exodus of foreign capital, which, in earlier years, played a dominant role in moving Indian indices.

Domestic Investors Absorb the Pressure

In sharp contrast, DIIs turned net buyers, injecting a substantial ₹3.5 lakh crore over the same period.

Specifically, in Q4 FY25 alone, domestic institutional investors purchased equities worth ₹1.9 lakh crore, compared to ₹1.2 lakh crore in FPI outflows.

This counterbalancing action prevented market volatility and helped indices remain resilient even during foreign sell-offs.

Historical Context: From Foreign Dominance to Indian Ownership

To understand the magnitude of this shift, it’s important to look at the historical holding patterns:

• In March 2015, FPIs owned 20.7% of Indian equities—nearly double the 10.4% held by DIIs.

• Over the years, as domestic capital markets matured, the gap narrowed.

• The March 2025 crossover is a symbolic shift of India reclaiming its financial sovereignty.

The growth of DIIs mirrors the rise in financial literacy, digitisation, and the availability of SIP and ELSS investment channels.

India's Liberalised Markets Attracted Massive FPI Inflows

In earlier decades, FPIs had unrestricted access to Indian stock markets post-liberalisation. Their influence was monumental:

• In 2010, Indian equities saw $29.3 billion in FPI inflows.

• In 2012, another $25 billion was poured into Indian companies.

These inflows pushed up valuations and increased dependence on foreign capital for index performance.

However, as Indian institutions grew stronger, the balance of power began shifting.

A Maturing Market and Domestic Resilience

India’s growing domestic capital base is helping the country build a more insulated and resilient stock market. Some key indicators include:

• Monthly SIP contributions have crossed ₹19,000 crore, setting new records.

• Mutual fund folios are rising, now crossing 15 crore accounts.

• More Indian households are turning to equity-linked savings instruments as a long-term wealth-building tool.

This increased involvement of Indian investors is critical in times of global volatility, where dependence on FPI inflows could lead to sharp market corrections.

Implications for the Future

This development has far-reaching consequences for the Indian stock market:

• Market sentiment will be increasingly influenced by local flows rather than foreign trends.

• Retail investors could play a larger role in price discovery, corporate governance, and long-term capital formation.

• Regulatory bodies like SEBI may consider further measures to empower domestic investors and protect retail interests.

Most importantly, it signals that India is transitioning from a foreign capital-dependent market to a self-sustaining equity ecosystem.

Conclusion

The March 2025 data serves as a watershed moment for the Indian financial ecosystem. For the first time in modern market history, Indian investors now own a greater share of their own listed companies than foreigners.

This shift is not just numerical—it is symbolic of India’s economic maturity, financial inclusiveness, and investor empowerment.

Going forward, if domestic participation continues to rise, Indian equities will become less vulnerable to foreign capital volatility, and more aligned with domestic growth narratives.

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