The Indian stock market in 2025 has seen a record outflow of funds by Foreign Institutional Investors (FIIs), but strong domestic participation has cushioned the impact.
Record FII Outflows:
FIIs have withdrawn a record ₹1.6 lakh crore ($18 billion) from Indian equities in 2025. This marks the largest withdrawal since FIIs began investing in India. The outflows are attributed to several global factors, including rising US bond yields, a stronger dollar, geopolitical uncertainties, and global trade tensions, particularly US tariffs. Concerns over stretched valuations in the Indian market also contributed to the FII exodus. The rupee's depreciation further intensified the selling pressure. FIIs sold equities in eight out of the 12 months of 2025, with the most significant selling occurring in January.
Domestic Investors to the Rescue:
Domestic Institutional Investors (DIIs), supported by strong inflows from retail investors through Systematic Investment Plans (SIPs), have stepped up to cushion the market. DIIs now hold a record 18.26% of all NSE-listed companies, surpassing foreign ownership for the first time in 13 years. Mutual funds' share in listed companies rose to an all-time high of 10.9%. This increasing domestic participation has provided a crucial buffer against FII sell-offs. "Tariff shocks and global uncertainty tested sentiment, but strong domestic participation ensured markets never truly lost their footing," InCred Wealth said.
Market Performance and Sectoral Trends:
Despite the heavy FII selling, the Indian benchmark indices, Nifty 50 and Sensex, have risen about 10% each in 2025. However, this underperforms some Asian and emerging market peers. On December 29, 2025, the SENSEX fell to 84696 points, a 0.41% loss from the previous session. Financial services and IT sectors witnessed the heaviest FII outflows, while healthcare, utilities, and manufacturing attracted inflows.
Rupee Impact:
The sustained FII selling has significantly contributed to the sharp depreciation of the Indian Rupee (INR) in 2025.
Looking Ahead to 2026:
Market participants anticipate a reversal of the FII outflow trend in 2026. Improvements in India's economic fundamentals, robust GDP growth, and the prospect of improved corporate earnings are expected to attract net FII inflows. Aashish Somaiyaa, CEO of WhiteOak Capital AMC, believes the US market needs to correct, which could lead to money moving to emerging markets like India. HSBC Global Investment Research suggests Indian equities are poised to regain momentum in 2026, with the worst of earnings downgrades behind.
Shift in Ownership:
Foreign ownership of Indian equities slipped to a 15-year low of 16.9% by the September quarter, while domestic mutual funds' holdings climbed to a record high of 10.9%. This highlights a significant shift in ownership in the Indian stock market. The widening gap between FII and DII holdings indicates the "retailisation" of corporate India.
