India’s equity markets have defied global trends in 2025, with the Nifty 50 index surging over 5% year-to-date, even as foreign portfolio investors (FPIs) pulled out $10.6 billion—the highest outflow among Asian economies. This paradox has sparked widespread curiosity: what’s keeping Indian markets buoyant amid such heavy foreign selling?
Domestic Institutional Investors (DIIs) Take the Lead
The primary driver of this resilience is the unprecedented inflow from domestic institutional investors, especially mutual funds. DIIs have pumped in over $36.1 billion into Indian equities so far in 2025, marking the second-highest annual inflow since 2007.
- In June alone, DIIs bought $5.32 billion worth of equities—11 times more than FPI outflows during the same period.
- Retail investors, through SIPs and mutual funds, have shifted from traditional savings to equities, fueling this momentum.
Retail Participation and Mutual Fund Boom
India’s mutual fund industry crossed a historic milestone in May, with Assets Under Management (AUM) surpassing ₹70 lakh crore for the first time. This reflects growing retail confidence in India’s long-term growth story.
Strong Economic Fundamentals
Despite global headwinds, India’s macroeconomic indicators remain robust:
- Stable inflation within RBI’s comfort zone
- Pro-growth monetary policy, including a surprise 50 bps rate cut in June
- Resilient corporate earnings and expanding manufacturing and services sectors
Shift in Ownership Dynamics
For the first time, DII holdings in Nifty-500 companies have surpassed FII holdings, signaling a structural shift in market ownership and reducing dependence on foreign capital.
What Lies Ahead?
While FPIs remain cautious due to high valuations, geopolitical tensions, and volatile crude prices, analysts believe India’s domestic liquidity and economic momentum will continue to support equities in the near term.
