Mutual Funds Drive DII Buying to Near Record High as FIIs Exit Indian Equities

India’s $5.1 trillion stock market is being firmly supported by domestic institutional investors (DIIs), even as foreign institutional investors (FIIs) continue to trim their exposure. Purchases by DIIs, led mainly by mutual funds and insurance companies, are edging close to record levels this year, providing a crucial buffer against persistent overseas selling.

Data shows that DIIs have bought more than $59 billion worth of equities so far in 2025, just shy of last year’s all-time high. In contrast, FIIs have sold about $14 billion as capital shifted to China, where markets have rallied strongly.

Retail Flows Strengthen DII Momentum

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One of the main drivers of domestic inflows has been retail investors, whose steady commitment through systematic investment plans (SIPs) has helped mutual funds maintain strong buying activity. More than $3 billion has flowed into recurring investment plans in recent months, according to market data.

“Retail investors have developed a disciplined investing habit through mutual funds, and steady inflows are likely to continue,” said Vikas Gupta, strategist at OmniScience Capital.

This shift marks a structural change in household savings. Indian families, once more inclined towards bank deposits, gold, and property, are increasingly moving money into equity mutual funds. Christopher Wood, global head of equity strategy at Jefferies Financial Group, highlighted in a note that this trend is now firmly entrenched.

As a result, the shareholding of domestic institutions in listed companies climbed to nearly 18% in March, surpassing that of foreign investors for the first time, data from Prime Database revealed.

Market Performance and Outlook

Despite strong domestic inflows, Indian equities have underperformed compared with regional peers this year. The NSE Nifty 50 Index has gained around 4% in 2025, significantly lagging China’s 15% rise. Analysts point to concerns over stretched valuations, subdued corporate earnings, and the impact of U.S. tariffs on Indian exports as reasons for the relatively modest performance.

The U.S. recently imposed a 50% tariff on some Indian exports, raising worries about economic growth and company profitability. Even so, analysts remain confident that local support will keep the market stable.

“Indian investors are not disturbed by global developments; their faith in local shares remains steadfast,” Gupta of OmniScience Capital said.

Conclusion

While foreign investors continue to recalibrate their portfolios, the unwavering commitment of Indian retail investors through mutual funds is expected to provide resilience to the market in the months ahead.