Domestic institutional investors (DIIs), particularly mutual funds and insurance companies, have provided strong support to Indian equities, negating the volatility caused by persistent selling by foreign institutional investors (FIIs), the Economic Survey 2025-26 said.
FIIs have been net sellers since July 2025, barring October and November. Even in January so far, FIIs have net sold Indian equities worth ₹36,771.10 crore. Meanwhile, DIIs have been net buyers throughout 2025. In January so far, DIIs have purchased Indian shares worth ₹67,183.01 crore.
According to Bloomberg data, MSCI India has gained 8.13% so far in 2026, a healthy return but no longer region-leading. MSCI Korea has surged 92.41%, MSCI Taiwan is up 30.49%, and MSCI China has risen 28.31%, signalling a strong rebound across North Asian markets and a relative cooling in India’s leadership position.
“The share of DIIs (by value of holdings) surpassed that of foreign institutional investors (FII) for the first time in Q4 FY25 and has now reached an all-time high in Q2 FY26,” the survey highlighted.
“In Q2 FY26, the share of DIIs (by value of holdings) stands at 18.3% while that of the FIIs stands at 16.7%, a 13-year low.”
Domestic mutual funds (MFs) have played a big role in the share of DIIs overtaking FIIs.
In Q2 FY26, the share of MFs (by value of holdings) touched an all-time high of 10.9%. So, while FIIs remain important in the Indian capital market, DIIs, along with retail investors and high-net-worth individuals, have acted as a strong counterbalance to FII decisions on market participation, the survey noted.
The combined share (by value of holdings) of DIIs, retail investors, and high-net-worth individuals also hit an all-time high of 27.8% in Q2 FY26, it showed.
According to a 27 January report by Kotak Institutional Equities, the investment behavior of retail investors will be critical for the Indian market, given the negative view of FPIs on India, “which may extend for a while”.
The brokerage said it is still unclear whether retail investors will keep investing aggressively or cut back, given weak trailing returns for the past 18 months.
It added that Indian retail investors’ price-agnostic investing through mutual funds has helped sustain high valuations across most parts of the Indian market over the last 2-3 years.
