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Mumbai – Foreign investors’ presence in Indian equities slipped to a 13-year low in August, marking a pivotal shift in the ownership structure of the country’s capital markets. Data released by the National Securities Depository Limited (NSDL) show that the foreign portfolio share in NSE-listed companies dropped to 15.85%, the weakest level since 2012.
In value terms, foreign portfolio assets in equities shrank to ₹70.33 lakh crore, down from ₹71.97 lakh crore in July, a decline of 2.3% in a single month.
Persistent Outflows Despite Market Resilience
Since the start of 2025, foreign portfolio investors (FPIs) have pulled out nearly ₹1.7 lakh crore from Indian markets. What makes the trend striking is that the withdrawals have taken place even as India’s benchmark indices have remained resilient.
The Sensex and Nifty 50 have each advanced almost 4% year-to-date in 2025, underscoring the strength of domestic flows and retail participation.
Market experts say this divergence highlights how local investors, not foreign capital, now anchor Indian equities.
Rise of Domestic Institutional Investors
A major story running parallel to foreign exits has been the aggressive buying by domestic institutional investors (DIIs).
According to Prime Database, DIIs have invested over ₹5.2 lakh crore in equities this year, pushing their ownership to a record 17.82% in the June 2025 quarter. This marks the first time in modern market history that DIIs have overtaken FIIs in terms of shareholding — a milestone first recorded in March 2025.
Mutual funds, insurance companies, and pension funds have steadily deployed money, powered by sustained inflows through SIPs (Systematic Investment Plans) and insurance premiums. This structural shift reflects the growing depth of India’s domestic capital markets.
Why Are FIIs Selling?
Analysts attribute the sustained foreign sell-off to multiple global and domestic factors:
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Expensive Valuations: Indian equities are trading at a premium compared to global peers, making them less attractive when cheaper opportunities are available elsewhere.
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Moderating Earnings: Corporate results in FY25 have not matched lofty expectations, particularly in the IT and financial sectors.
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Global Diversion: Funds have rotated into markets like the United States, China, and Europe, which are delivering stronger earnings and are relatively cheaper.
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Policy and Tariff Concerns: Trade-related uncertainties, including tariff disputes, have weighed on sentiment.
“Global funds have shifted from a buy-and-hold strategy on India to a more tactical allocation approach,” said one market strategist.
Sectoral Outflows in August
The NSDL data also reveals that selling pressure was concentrated in key sectors:
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Financial Services: Net outflows exceeded ₹23,300 crore, the heaviest among all sectors.
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IT: Sales worth ₹11,285 crore were recorded.
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Oil & Gas: About ₹6,100 crore was withdrawn.
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Other sectors facing persistent exits included Power (₹4,000 crore), Consumer Durables (₹1,970 crore), Healthcare (₹1,400 crore), Realty (₹1,245 crore), and FMCG (₹1,100 crore).
Where FIIs Are Buying
Despite the overall retreat, FIIs selectively deployed capital in sectors offering growth visibility and relatively better valuations:
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Telecom: Net inflows of ₹5,766 crore, reflecting optimism around 5G expansion and rising average revenue per user (ARPU).
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Construction Materials: Inflows of ₹2,475 crore, aligned with India’s infrastructure push.
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Services: About ₹2,350 crore invested.
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Capital Goods and Automobiles: Inflows of nearly ₹1,800 crore each.
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Chemicals: Net buying of ₹1,570 crore.
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Construction: Around ₹1,350 crore invested.
This sectoral rotation indicates FIIs are not abandoning India entirely, but are adopting a more selective and opportunistic approach.
Market Outlook
With FII shareholding at its lowest in over a decade, market watchers are asking if this is a temporary trend or a structural shift.
Domestic liquidity, powered by retail investors and DIIs, has provided a cushion against foreign withdrawals. Inflows into mutual funds through SIPs have been hitting record highs every month, giving Indian markets a stability that was missing a decade ago when foreign flows dictated direction.
However, analysts caution that continued large-scale FII selling could cap market upsides, particularly if domestic flows moderate or valuations fail to correct.
Conclusion
The decline in foreign shareholding to 13-year lows underscores the changing dynamics of Indian markets. Once overwhelmingly dependent on foreign capital, India’s stock market today stands on stronger domestic foundations.
For global investors, India remains the fastest-growing major economy, but high valuations and better opportunities abroad have forced a more tactical approach. For domestic investors, however, the message is clear: homegrown capital is increasingly calling the shots in India’s equity story.
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