Domestic institutional investors have emerged as the primary stabilising force in Indian equities as foreign investor participation weakened across several sectors. A sharp rise in domestic ownership, supported by sustained inflows, has altered the market’s ownership structure and reduced dependence on overseas capital.
According to a strategy report by Motilal Oswal Financial Services, the divergence between domestic institutional investors (DIIs) and foreign institutional investors (FIIs) has become increasingly visible across sectors, market capitalisations, and benchmark indices.
Over the past year, DIIs increased their exposure in 21 out of 24 sectors within the Nifty-500 universe. The largest rise in holdings was recorded in private banks, technology, telecom, real estate, infrastructure, and healthcare.
In comparison, FIIs reduced their stakes in 17 sectors, including private banks, non-lending NBFCs, technology, consumer, infrastructure, and real estate. However, foreign investors selectively increased allocations towards metals, PSU banks, telecom, and logistics.
The report noted that DII ownership in the Nifty-500 climbed to a record 20.9% as of March 2026, reflecting an increase of 170 basis points year-on-year and marking the eighth consecutive quarter of growth. FII ownership, meanwhile, declined to 17.1%, down 180 basis points during the same period.
The gap becomes more visible in free-float ownership. DIIs now account for 41.2% of the free float in Nifty-500 companies, compared with 33.8% held by FIIs. As a result, the FII-to-DII ownership ratio has fallen to 0.8x, highlighting the expanding influence of domestic investors in the equity market.
Capital flow trends further reinforced this transition. DIIs invested $27.2 billion during the January-March quarter of calendar year 2026, supported by steady systematic investment plan inflows.
FIIs, on the other hand, remained volatile. After inflows in February, foreign investors turned aggressive sellers in March, withdrawing $14.2 billion amid rising geopolitical tensions. Total FII outflows during the January -March quarter reached $15.8 billion.
The report added that markets could respond positively even if foreign outflows moderate, while a sustained return of overseas inflows may support stronger rallies once geopolitical conditions stabilise.
Technology exposure within FII portfolios has dropped to a record low of 7.3% of their total Nifty-500 allocation. Despite this reduction, BFSI continues to remain the largest segment in the portfolios of FII with a 32.1% weighting, still above benchmark levels.
FIIs also raised allocations sequentially in metals, healthcare, utilities, capital goods, PSU banks, oil & gas, and retail sectors.
DIIs, meanwhile, remain overweight on consumer, PSU banks, oil & gas, technology, metals, and telecom. However, they are underweight on private banks, NBFCs, capital goods, automobiles, real estate, and healthcare.
The accumulation trend extended across market segments, with DII holdings in large-cap, mid-cap, and small-cap stocks surging to 22%, 19%, and 17.7%, respectively. FIIs reduced exposure across all three categories over the past year.
A similar ownership shift was visible within the benchmark index of the county, Nifty-50 index, where DII holdings have surged to an all-time high of 25.4%, while FII ownership declined to 22.2%. DIIs increased stakes in 82% of Nifty-50 companies, whereas FIIs reduced holdings in 78% of index constituents.
Read More: FIIs Selling in Indian Equities Nears ₹2 Lakh Crore Mark Within First 4 Months of 2026!
The Indian equity market is witnessing a structural transition led by rising domestic participation and declining foreign ownership. While DIIs continue to provide stability through sustained inflows, future market direction is still expected to remain closely linked to any reversal in global foreign investment trends.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: May 6, 2026, 9:27 AM IST
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