India Records Highest Domestic Investor Inflows in Year
Interestingly, the scale of DII buying this time is far greater than in past instances, signaling a shift in market dynamics where domestic investors are becoming increasingly influential. This growing resilience not only cushions the market against sharp corrections but also reflects rising confidence and participation among Indian investors in equity markets.
Domestic Investors Take the Lead as FPIs Pull Out
Mumbai: The Indian stock market has witnessed a historic shift in the last 12 months, with domestic institutional investors (DIIs) stepping in as the driving force behind record inflows. According to industry data, DIIs poured in a staggering \$80 billion into the secondary market over the past year, a figure that is double the \$40 billion withdrawn by foreign portfolio investors (FPIs) during the same period. This strong show of confidence by domestic players has provided crucial support to the markets at a time of heightened volatility.
But recent trends are breaking this dependency. Despite sharp selling by foreign investors, DIIs have not only stepped up to absorb the pressure but have done so on a scale not seen even during previous global shocks. A report by ICICI Securities pointed out that this counter-buying has been far stronger compared to past instances, such as the 2008 Global Financial Crisis and the market correction of 2022.
the first seven months since 2007. This level of participation reflects a deeper trend: the growing maturity, confidence, and long-term commitment of domestic investors toward India’s economic and market story.
Yet, this resilience has not completely translated into higher market returns. Aggressive selling by FPIs in recent months has weighed on performance, preventing indices across large-cap, mid-cap, and small-cap segments from delivering gains. Over the past 12 months, Indian equities have moved largely sideways, with returns ranging from flat to slightly negative.
The selling did not stop there; August also witnessed continued FPI withdrawals, further capping market momentum.
The sharp contrast between global investor preferences highlights India’s current challenge. The pattern continued in August, with Japan garnering \$12.5 billion and Indonesia drawing \$515 million, even as India and South Korea struggled with outflows.
Interestingly, before this sudden reversal, foreign investors were actually net buyers in India. In the first quarter of FY26, FPIs had accumulated shares across market segments alongside DIIs, while promoters, retail investors (excluding small caps), and foreign direct investors supplied equity. However, once sentiment shifted in July, India was hit disproportionately hard compared to its Asian peers.
Despite these headwinds, domestic investors have emerged as the market’s anchor. In just the first seven months of 2025, DIIs accounted for more than 80% of the total inflows recorded in 2024, underscoring the growing strength of homegrown capital.
This changing dynamic carries important implications. For one, it reduces India’s historical overdependence on fickle foreign money and makes the market more resilient to global shocks. At the same time, it reflects the increasing financialization of domestic savings, with mutual funds, insurance companies, and pension funds channeling household wealth into equities.
The road ahead, however, will depend on whether domestic flows can consistently counterbalance foreign swings. If DIIs continue to grow at this pace, India’s stock market could be on the path to greater stability and self-reliance. For now, it is clear that the center of gravity has shifted—Dalal Street is no longer just at the mercy of foreign investors; the domestic investor has truly arrived.