Domestic institutional investors (DIIs) have strengthened their grip on Indian equities, with their ownership in Nifty 500 companies rising to a record 20.9 per cent, while foreign institutional investor (FII) holdings declined to 17.1 per cent, according to a report by Motilal Oswal Financial Services.
The report noted that Financial Year 2026 has been among the most volatile periods for Indian equities, with markets navigating geopolitical tensions linked to the ongoing Iran-related conflict alongside domestic resilience.
Despite persistent foreign outflows, domestic investors have continued to provide stability to the market. During the first quarter of calendar year 2026, DIIs invested USD 27.2 billion in Indian equities, supported by steady systematic investment plan (SIP) inflows.
In contrast, FII flows remained volatile. While foreign investors turned net buyers in February 2026 with inflows of around USD 1.7 billion, renewed geopolitical tensions triggered sharp outflows of USD 14.2 billion in March, taking total FII outflows for the quarter to USD 15.8 billion.
The report said that any moderation in FII outflows could support market sentiment, while a return to sustained inflows may trigger sharper rallies.
The FII to DII ownership ratio in the Nifty 500 declined to 0.8 times in March 2026. As a proportion of free float, FII ownership fell 360 basis points year-on-year to 33.8 per cent, while DII ownership rose 310 basis points to 41.2 per cent.
Promoter holdings remained largely stable at 49.4 per cent, while retail participation increased to 12.7 per cent during the same period.
Sectoral trends showed divergence between domestic and foreign investors. DIIs increased exposure across 21 of 24 sectors, with the highest additions seen in private banks, technology, telecom, real estate, healthcare and non-banking financial companies in the lending segment.
On the other hand, FIIs reduced their allocation to banking, financial services and insurance (BFSI) to 32.1 per cent, while increasing exposure to metals, healthcare, utilities and oil and gas. Notably, FII allocation to technology declined to a record low of 7.3 per cent.
The report highlighted that domestic institutional participation has continued to strengthen since 2021, positioning DIIs as a key force in driving market direction amid global uncertainties. |
