India's equity market is undergoing a significant power shift, with domestic institutional investors (DIIs) consistently outpacing foreign portfolio investors (FPIs) for the past six quarters. This marks the first sustained reversal in decades, signaling a market increasingly driven by local money.
Data from the Centre for Monitoring Indian Economy (CMIE), covering over 4,000 listed companies, reveals that the value-based share of DIIs in Indian equities reached a record 18.4% in the September 2025 quarter, a notable increase from 18% in the previous quarter and 16.7% the year before. Since March 2024, DIIs have maintained a clear lead over FPIs, marking six consecutive quarters of this trend.
DIIs and FPIs are key players in the Indian financial markets. FPIs are investors or investment funds based outside of India investing in the country's financial assets. DIIs, in contrast, are investors residing within India who allocate funds to local securities and financial instruments; they include mutual funds, insurance companies, and pension funds. While FPIs bring foreign capital into the economy, DIIs contribute to domestic liquidity and stability.
This rise in DII ownership underscores their growing role in market stability. Several factors have contributed to this shift. There's increasing financialization of household savings, spurred by the growing popularity of mutual funds. Systematic investment plans (SIPs) have also played a significant role, with monthly inflows averaging ₹25,000 crore. These steady inflows provide crucial support, helping the market recover from downturns and offsetting the impact of FPI sell-offs.
In calendar year 2025, DII's net investments hit ₹6 trillion, the highest since 2007. This robust domestic flow has effectively counterbalanced the selling pressure from FPIs, who withdrew $23.3 billion (₹2.03 trillion) from the Indian equity markets in CY25.
Despite the increasing dominance of DIIs, foreign investors are not becoming irrelevant. FPIs can include pension funds, mutual funds, investment trusts, banks, insurance companies and sovereign wealth funds. Both FPIs and DIIs significantly impact market trends and capital flow; their investment choices are often influenced by political stability, economic policies, and global financial conditions.
The shift towards greater DII participation has several implications. Increased domestic ownership can reduce market volatility and provide a more stable base for Indian equities. It also reflects a maturing of the Indian financial market, with local investors playing a more prominent role in the country's economic growth. Moreover, it signifies a structural shift where Indian households are channeling a larger share of savings into financial assets.
Looking ahead, the trend of DII dominance is expected to continue. Projections suggest that SIP inflows could reach ₹30,000 crore in the near term, further insulating the Indian market from global shocks. Accommodative policies from the Reserve Bank of India (RBI) and optimistic GDP growth estimates for fiscal year 2026 further support this outlook. While DIIs are positioned to command an even larger share of the Indian equity market, the role of FPIs will remain important, as they bring in valuable foreign capital and contribute to market diversity.
