DIIs come to rescue of Dalal St as FIIs offloading

New Delhi: Domestic institutional investors (DIIs) invested a record Rs6 lakh crore in Indian equities in calendar year 2025, marking the highest annual inflow since the BSE began maintaining data in 2007. The strong domestic inflow offset the selling effect by foreign portfolio investors (FPIs) during CY25, who pulled out $23.3 billion or over Rs2 lakh crore from Indian equities, National Securities Depository Limited (NSDL) data showed.

Net DII investment, comprising banks, DFIs, insurance companies, pension schemes, and mutual funds, surpassed Rs5.26 lakh crore investment in CY24, highlighting growing domestic support for equities.

FPIs, however, invested Rs49,590 crore in domestic equities via primary market and other routes in CY25. As per NSDL data, FPIs continued to sell in seven of the last 11 months. But now the trend is changing this October as net inflows by foreign funds reached to Rs653 cr so far after three months of relentless selling.

Analysts forecasted the momentum to be sustained going ahead, largely due to SIP flows, which remain resilient even on a market decline. They said that unless a global shock causing a 30-40 per cent correction occurs, DII flows will surpass the 2025 levels in CY26.

Further, if the tariff concerns subside, global investors could eventually play catch-up, they indicated. DIIs have benefited from purchasing during sell-offs since the Lehman crisis, when FIIs entered the panic selling phase, according to multiple reports.

Analysts observed that domestic institutional investors increased their weight in the BFSI, capital goods, healthcare, and auto sectors.

DII inflows helped absorb selling pressure from FIIs, significant promoter offloads and profit-booking by private equity funds. Strong domestic flows, however, have not led to widespread gains. Indices across all market capitalisations have shown flat to negative performance over the past 12 months.

However, in terms of YTD returns, the Sensex and Nifty index are up 5.11 per cent and 6.56 per cent, respectively. The BSE Smallcap index has tanked 5.6 per cent, while BSE Midcap index is down 1.6 per cent so far in CY25. Nifty 50 remained flat in the last one year and is underperforming other asset classes like gold and bitcoin. Analysts attribute the reasons for FII selling to lack of lucrative valuations and earnings slowdown. These factors led foreign funds to seek opportunities elsewhere.

During 2024 Samvat till September 2025, foreign funds offloaded Indian equities, largely driven by high valuations and attractive opportunities in other markets. With the market trading at a PE of around 22 and earnings growth slowing, FIIs are reallocating capital to regions offering better returns.