With ₹3.4 trillion already in, are DIIs the new market movers from here on?

Mint

6 days ago

Even as foreign investors have turned cautious, domestic institutional investors (DIIs) have emerged as the engines of India's 2025 stock market rally—pumping in record inflows and offering a resilient counterweight to global volatility.
DIIs infused ₹3.44 trillion into Indian equities between January and June 2025—the highest ever for this period since 2017, NSDL and BSE data showed.
One of the biggest shifts in the market is how more Indian households are steadily investing through systematic investment plans (SIPs). It is a real change in how people think about saving, putting small amounts regularly into the stock market and becoming part-owners of strong Indian companies. This is not quick, speculative money; it is long-term and consistent, explained Jiten Doshi, co-founder and chief investment officer, Enam AMC.
According to Doshi, India's economic resilience—GDP growth over 7%, stable inflation, robust corporate earnings—and liquidity driven by RBI rate cuts are making equities the go-to vehicle for long-term wealth creation.
'The market rally is a function of three core forces: the earnings trajectory, the participation structure, and liquidity," says Doshi.
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Volatility down, but valuations stretched
So far in 2025, the Nifty 50 has gained more than 7% but it has been anything but a smooth ride, with wild swings of volatility along the way. India's Volatility Index (VIX), also known as fear gauge, declined from a high of 22.79 on 7 April, the month when Trump first announced reciprocal tariffs, to over 12 level on Monday.
"Time and price corrections have played out across many sectors and stocks," says Jay Kothari, Global Head of International Business at DSP Asset Managers. That said, he feels a few names still look stretched on valuations, so it continues to be a stock picker's market.
Domestic inflows will not only remain resilient but also continue to outpace foreign investments in 2025 and beyond, largely driven by the "home-country bias" of Indian investors even as they will look for diversification globally in themes not available on Indian shores, he believes.
Even as investors diversify their portfolios, rising geopolitical tensions—from the Middle East to India-Pakistan, and the ongoing US-China tariff standoff—are pushing many to lean more heavily toward their home markets.
'There's a clear shift toward relative safety and familiarity of India will help in attracting foreign flows," noted Kothari.
India may be attracting steady interest, but it's not the only option for global investors. Some Asian markets like Taiwan and South Korea are also competing for foreign inflows, said Kothari. Meanwhile, Japan, the US, and Europe remain core allocations in most portfolios, especially as many investors benchmark against the MSCI ACWI.
The MSCI ACWI (All Country World Index) tracks large and mid-cap stocks across 23 developed and 24 emerging markets, covering about 85% of the global investable equity universe with 2,528 constituents.
Also read: India's share in global market cap up from recent low—but risks remain
Will homegrown flows keep outrunning foreign capital?
DII ownership has been steadily climbing. By the end of March 2025, domestic institutions held 17.4% of total shares in Nifty 200, highest since the low of 13.3% back in June 2021, according to Prime Database. Meanwhile, FII ownership slipped to 17.35% by March end 2025, their lowest since the 16.9% recorded as of September end of 2020.
Foreign flows are often seen through a 'push and pull' lens, either drawn in by compelling opportunities within emerging markets or redirected from developed markets due to weaker prospects there, notes a June report by GMO.
Even as near-term inflows into Indian equities remain strong on the back of steady DII support, foreign investors haven't been negative on India either, noted Nimesh Chandan, CIO at Bajaj Finserv AMC. In fact, he thinks foreign interest in Indian equities is only picking up, though a few pullbacks here and there are just part of the game, he adds.
'Not only do we see foreign participation in the secondary market, but also strong demand in initial public offers (IPOs) and qualified institutional placements (QIPs)."
Looking at the past two months, foreign investors have shown steady interest in recent IPOs. In Aegis Vopak Terminals, global names like Government Pension Fund Global, Aberdeen Standard, and Goldman Sachs picked up stakes in May.
Schloss Bangalore attracted the likes of CLSA, Citigroup Global Markets, Societe Generale, Fidelity, and Morgan Stanley in May. In June, the Government of Singapore invested in Kalpataru, while HDB Financial Services saw participation from marquee investors such as BlackRock, Abu Dhabi Investment Authority, Schroders, Allianz, and HSBC Global, according to Prime Database.
It is not just IPOs, foreign investors have been active in QIPs too. In June, Nomura Funds Ireland PLC picked up a stake in Kaynes Technology, while Capri Global Capital attracted big names like Societe Generale, Citigroup Global Markets Mauritius, Morgan Stanley Asia, Goldman Sachs, and BlackRock.
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