Domestic funds cushion Indian markets as FIIs head for the exit in 2025
Indian stock markets saw a stark contrast in 2025. Foreign investors withdrew record funds, citing slowing growth and a weak rupee. However, domestic institutions, fueled by retail investor inflows, invested significantly. This shift led to domestic ownership of Indian companies exceeding foreign ownership. Despite market gains, Indian stocks underperformed other Asian markets. Domestic inflows provided crucial support to the market.
Synopsis
Indian stock markets saw a stark contrast in 2025. Foreign investors withdrew record funds, citing slowing growth and a weak rupee. However, domestic institutions, fueled by retail investor inflows, invested significantly. This shift led to domestic ownership of Indian companies exceeding foreign ownership. Despite market gains, Indian stocks underperformed other Asian markets. Domestic inflows provided crucial support to the market.
IANS
The quantum of selling by overseas investors is expected to ease in 2026. They may even turn buyers in the New Year if the India-US trade deal is sealed and the rupee rebounds.
Mumbai: Institutional behaviour in the Indian stock market in 2025 has been marked by sharp contrasts, with overseas investors pulling record money out, while their domestic peers pumped in like never before.
Net foreign selling, at about ₹1.54 lakh crore, is the highest for a calendar year, as slowing growth, pricey valuations and a declining rupee exacerbated the risk-off sentiment. Local institutions - led by pension schemes and mutual funds (MFs) flush with monthly inflows from a swelling retail investor base - remained resilient buyers, pouring ₹7.7 lakh crore into the market this year. This led to domestic institutions' ownership of Indian companies surpassing that of overseas investors in March, with the gap only widening during the rest of the year.
"Foreign selling in Indian equities can be attributed to global investors preferring other markets on a relative basis," said Sriram Velayudhan, senior vice president, IIFL Capital Services. "Factors like lacklustre earnings, tariff overhang and a weak currency, apart from valuations, kept them away."
The Sensex and Nifty advanced 9.7% and 8.4%, respectively, to briefly touch all-time highs.
Agencies
MFs Provide Big Boost
However, they still underperformed various other markets in Asia and the Emerging Markets basket including China, Brazil and Taiwan, which have gained between 26% and 34% so far this year. That said, but for domestic institutional flows, Indian stocks could have ended up in losses.
"The unprecedented SIP (systematic investment plan) inflows this year have supported the weak markets despite the aggressive foreign sell-off," said Velayudhan.
Equity MFs received net flows to the tune of Rs 3.22 lakh crore, which found its way both to secondary and primary markets, helping many companies raise money through initial public offerings (IPOs).